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Fri 12 Mar 2010 05:25 PM

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Dubai debt may lift borrowing costs - Bahrain cenbank head

'Negative' global reaction to Dubai’s debt restructuring plan may tighten liquidity.

Dubai debt may lift borrowing costs - Bahrain cenbank head
BUDGET DEFICITS: Bahrain expects to post budget deficits in 2009 and 2010. (Getty Images)

Bahrain’s Central Bank Governor Rasheed Al Maraj said the cost of borrowing may increase if there’s a “negative” global reaction to Dubai’s debt restructuring plan.

“The impact of a negative reaction to Dubai will be tighter liquidity, which will raise the cost of borrowing for some,” al-Maraj said in an interview on CNN.

He said investment banks have “suffered” more than retail banks due to their involvement in private equities and real estate markets. “The valuation of all these assets has taken a downturn, and this has been reflected in their results last year,” he said.

He added that Bahrain has “always adopted conservative financial management” and carries a debt to gross domestic product ratio of about 20 percent.

Bahrain’s low levels of debt give the Gulf state room to adjust fiscal policy to help the economy through the global crisis, Finance Minister Sheikh Ahmed bin Mohammed al-Khalifa said yesterday in Manama.

The oil-exporting Gulf state has said it expects to post budget deficits in 2009 and 2010 as it maintains spending to boost the economy. The government is forecasting economic growth of 4 percent this year, up from 3.2 percent in 2009. The economy is benefiting from a rise in oil prices to more than $80 a barrel.

Last year, the central bank took two banks under administration after they defaulted on debt.

The country’s sovereign bond roadshow will begin next week and the deal is likely to close in April, al-Maraj said yesterday in Manama. The bond will have a 10-year maturity and a dollar denomination, he said. BNP Paribas SA, Deutsche Bank AG and JPMorgan Chase & Co will manage the sale, he added. Bankers previously said $1 billion was to be raised.

Al-Khalifa also said yesterday that the kingdom has an unemployment rate of 3.8 percent and had boosted its budget by 202 million dinars ($536 million) this year for infrastructure projects.

Bahraini banks have an overall loan-to-deposit ratio of between 75 percent and 80 percent, al-Maraj said yesterday. The central bank is forecasting credit growth of 5 percent this year with lenders seeing an increase in non-performing loans, Al Maraj said.

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