Bailed-out Bahrain may need more Gulf support as soon as this year

DUBAI/LONDON (Reuters) – Bahrain may need more financial aid from fellow Gulf Arab states as soon as this year but its wealthier neighbours could themselves be hamstrung by low oil prices and the economic impact of the new coronavirus, bankers and analysts said.

Bahrain, rated junk by major credit rating agencies, in 2018 received a $10 billion aid package over five years from Saudi Arabia, Kuwait and the United Arab Emirates to help it avoid a credit crunch in a deal tied to fiscal reform.

But the U.S.-allied island state, a small oil producer, could need a larger amount than allotted for 2020 to fill bigger financing needs with petroleum prices at $20-$30 a barrel.

Bahrain announced in March an $11 billion stimulus package including plans to spend $570 million on private sector salaries to mitigate the coronavirus impact on the economy.

“Our estimates point to Bahrain needing additional funding in 2020 from the $10 billion support package they got in 2018,” said Sara Grut, emerging market strategist at Goldman Sachs.

The finance ministry declined to comment about when it expects to receive this year’s tranche of the five-year $10 billion aid, which would equal $1.76 billion according to official plans announced last year.

Bahrain’s fiscal deficit is expected to jump to 15.7% of gross domestic product this year from 10.6% in 2019, according to the International Monetary Fund. Bahrain’s preliminary estimates in February forecast the 2019 deficit at 4.7% of GDP.

A debt banker in the Gulf said Bahrain’s financing gap would be “tiny”, especially with additional assistance, but that its neighbours’ support “might not be so forthcoming this time”.

Bahrain lacks the ample oil and financial resources of its neighbours, and its state finances are among the weakest in the region. But its Gulf Arab allies have provided political and economic support to maintain its stability over the years due to its importance in countering Iranian influence in the region.

Headquarters of the U.S. Navy’s Fifth Fleet, Bahrain shares with Riyadh a concern about discontent among some Shi’ite Muslims citizens against their ruling Sunni dynasties, and accuse Shi’ite Iran of fomenting it – a charge Iran denies.

Toby Iles, director at Fitch, said Bahrain’s “small size and strategic importance favour ongoing support” from Gulf allies, but Manama would need to use the remainder of the package more quickly.

For a graphic on Oil price fiscal breakeven rates, click here

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