Sources say five-year aid package is being considered to help Bahrain meet financing needs
Bahrain’s Gulf Arab allies are weighing plans for a five-year aid package to steady its finances and protect a currency peg seen as vital to regional economic stability, according to three people with knowledge of the matter.
The assistance would help Bahrain meet its financing needs over the period while it carries out fiscal reforms, the people said on condition of anonymity. The amount under negotiation is $10 billion, though a final agreement has yet to be reached, one of the people said.
The deal is taking shape after months of negotiations over the measures Bahrain would take to receive support from Saudi Arabia, the United Arab Emirates and Kuwait. The package may include deposits and low-interest loans, one of the people said.
The funds would help avert a devaluation that investors fear could force other countries in the region to follow suit. They’ll also allow Bahrain, a close Saudi and US ally, to borrow from international debt markets at cheaper interest rates.
Bahrain’s economy, the smallest among the six members of the oil-rich Gulf Cooperation Council, has been hit hard by low oil prices since 2014. Bloomberg News reported in August that the aid program would involve spending cuts and measures to increase non-oil revenue, including the introduction of a value-added tax.
Officials in Saudi Arabia and the UAE didn’t immediately return a request for comment. Kuwait’s Finance Ministry said it doesn’t comment on speculative stories based on unnamed sources.
The Bahraini government referred Bloomberg to a statement issued in August by the finance chiefs of four countries when they met in Manama, Bahrain’s capital, to review a technical report that included “a comprehensive fiscal balance program, prepared by the four countries’ joint working team in coordination with the Arab Monetary Fund.”
Bahrain has been relying on bond markets to finance budget and current-account deficits and replenish its foreign-currency reserves. Authorities scrapped a bond sale in March after investors sought higher yields, but raised $1 billion from Islamic securities.
The country’s bonds gained on Wednesday after JPMorgan Chase & Co. said it was among five GCC members that will become eligible for inclusion in JPMorgan’s emerging-market bonds indexes from the end of January, potentially attracting billions of dollars in inflows.
The yield on Bahrain’s securities due 2028 dropped 29 basis points, the most in three months, to 7.4 percent, according to data compiled by Bloomberg.