Sunday 08, July 2018 by Kudakwashe

Bahrain’s depleting FX reserves signals vulnerability

 

Bahrain’s foreign exchange reserves dropped by 13.9 per cent in May 2018.

  

The Central Bank of Bahrain’s (CBB) foreign exchange (FX) reserves fell by $287 million in May to $1.8 billion, which equates to a month of import cover.

In a report by MUFG, IMF recommends a minimum of three months of import cover for pegged exchange rates.

The Bahraini Dinar (BHD) have come under pressure in previous weeks, while the details of a GCC financial assistance package are expected to be announced shortly.

Bahrain’s financing requirements projected at $4.2 billion, an estimated 11.1 per cent of the kingdom’s GDP in 2018 remain vital against a backdrop of a challenging external environment.

The Government have been tapping domestic markets since April, having raised $ 1 billion through an international Islamic Sukuk issuance in March 2018, but shelved the plans for a conventional international bond issuance due to the elevated cost of funding, the report said.

Bahrain also raised $ 1.4 billion domestically in the first five months of this year, however, the projected double-digit fiscal deficits over the next five years and the sharp rise in debt have taken their toll, resulting in an erosion of confidence, ratings cuts, and a rise in the cost of borrowing.

Moodys’ rated the kingdom B1 with a negative outlook.

However, whilst details of support of the GCC package are yet to emerge and the kingdom take some comfort in the recently discovered oil reserves which have encountered an increase in oil prices this year, double-digit fiscal deficits figures are expected until the end of 2022.

Bahrain remains the weakest spot in the GCC region, remaining vulnerable to a sustained period of low oil prices.

 

  

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