Bahrain has asked Gulf Arab allies for financial assistance as it seeks to replenish its foreign-exchange reserves and avert a currency devaluation , according to people with knowledge of the talks.
The request was made to Saudi Arabia and the UAE, two of the people said. A third person said Kuwait was also asked. The countries responded by asking the island kingdom do more to bring its finances under control in return for the money, the people said on condition of anonymity because the discussions were private.
“Most people are fully expecting the other Gulf countries to come to Bahrain’s aid,” said Jason Tuvey, a London-based economist at Capital Economics.
Bahrain, a close Saudi ally, has been more vulnerable to slumping oil prices and regional political instability than richer GCC states, several of whom have cut spending. And while Bahrain’s budget deficit is set to narrow this year, the International Monetary Fund expects the shortfall to be the highest in the GCC.
The central bank’s foreign reserves, including gold, have tumbled about 75% since 2014 to just above 522mn dinars ($1.39bn) in August. Without aid or a recovery in oil revenue, authorities may struggle to keep the currency’s peg to the US dollar – maintained at 0.376 Bahraini dinars.
Bahrain’s debt risk, measured by five-year credit default swaps, has dropped more than 60 basis points to 241 as of Tuesday, according to data compiled by Bloomberg.
Bahrain is also a member of a Saudi-led coalition boycotting neighbouring Qatar.
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