Bahrain pledged to implement steps to repair its strained finances widely seen as crucial to help the kingdom receive support from Gulf Arab allies
Prime Minister Khalifa Bin Salman Al Khalifa set up a committee to devise plans to balance the budget, the Bahrain News Agency reported on Thursday. The group, whose members include the finance minister and central bank chief, will present its plans to the premier, who will take a decision “at the earliest possible time.”
The announcement comes after Saudi Arabia, the United Arab Emirates, and Kuwait said they were working with Bahrain on a program to stabilise its finances after the kingdom’s bonds tumbled and its credit risk surged to a record-high. Investors fear that without help from its neighbours, Bahrain would be forced to abandon its currency peg, raising questions about the ability of other Gulf nations to sustain their own currency policies.
No details were provided on the nature of discussions between Bahrain and its allies. In November, Bloomberg News reported that the three countries asked the kingdom to do more to bring its finances under control in return for the money.
“Delays or lack of clarity on the form and modality of financial support by the Gulf Cooperation Council would put negative pressure on the sovereign’s creditworthiness,” Moody’s Investors Service said in a note.
Bahrain’s bonds rebounded and bets on its currency weakening receded after Tuesday’s announcement of the possible Gulf aid.
The island Kingdom, a key Saudi ally and home to the US Fifth Fleet, has been running a double-digit deficit for the past three years with government debt at nearly 90 per cent of economic output, according to Moody’s. Central bank reserves dropped to $2.3 billion by the end of last year, equivalent to about a month of imports, from $5.8 billion by the end of 2014.
The prime minister said the government was committed to implement economic reforms without burdening citizens, BNA reported.