Bahrain receives first installment of Gulf aid, expects deficits to fall

View of the Bahrain financial harbor and other high rise buildings in Manama on Oct 28, 2018 in Manama. (Shutterstock image)
Updated 09 May 2019
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Bahrain receives first installment of Gulf aid, expects deficits to fall

  • Saudi Arabia, Kuwait and the UAE agreed last year to give Bahrain $10 billion to support the country’s funding requirements
  • Bahrain has embarked on a fiscal program aimed at eliminating its budget deficit by 202

DUBAI: Bahrain said it received $2.3 billion last year and is expecting another $2.28 billion in 2019 under an agreement with its Gulf allies to bail it out of a deficit, the government said on Thursday.
Saudi Arabia, Kuwait and the United Arab Emirates agreed last year to give Bahrain $10 billion to support the country’s funding requirements as it embarks on a fiscal program aimed at eliminating its budget deficit by 2022.
The announcement came as the kingdom prepares to return to the international bond market after it met with investors to discuss a possible new debt sale this year, which would be its first since its neighbors’ bailout.
A statement from the government’s media directorate, quoting a finance ministry representative, said “the first installment had been received in full, and that receipt of the second installment has already started.”
The Gulf kingdom said it is set to receive further payments of $1.76 billion in 2020, $1.85 billion in 2021, $1.42 billion in 2022 and $650 million in 2023.
The statement added that the year-on-year budget deficit would fall from 6.2 percent of GDP in 2018 to 3.4 percent in 2019 and further to 2.1 percent in 2020.
Bahrain’s bonds have become among the most profitable in the Gulf since the bailout last year. They offer investors the returns of a junk-rated country but without the risk of impeding defaults, given the support of its wealthier neighbors.
But the bonds dropped on Wednesday, partly because of news about the new debt sale but also because the government scrapped plans to reform its subsidy system, undermining efforts to mend its finances, as reported by Reuters on Tuesday.
Bahrain’s international bonds were weaker on Wednesday, with bonds due in 2026 and in 2028 both shedding around 0.5 cents on the dollar.
As part of last year deal with its neighbors, Bahrain embarked on a series of reforms last year, among them imposing a 5 percent value-added tax, further subsidy cuts and a voluntary retirement plan for state workers.
But the government ditched the subsidy reform because its Sunni Muslim rulers were worried that austerity moves would bolster the majority Shiite-led opposition and stir more of the unrest that has rattled the kingdom since Arab Spring uprisings of 2011.
The government said later it reconfirmed its commitment to subsidy reform and that it would be implemented in coordination with parliament.
“The deficit is down over a third and annual GDP growth remains robust. Bahrain is demonstrating its commitment to delivering strong, sustainable economic growth through swift implementation of the Fiscal Balance Program,” the statement said.
The price of Bahrain’s 2028 dollar bonds have risen since the Gulf bailout from a record low last June when the country looked in danger of default. But that upward trajectory could go into reverse if Manama does not tackle its spending overruns.

 

 


US, China need to reverse course in trade row to help economy: OECD

Updated 19 sec ago
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US, China need to reverse course in trade row to help economy: OECD

  • OECD: The global economy would grow by only 3.2 percent this year
  • China, which is not an OECD country, has been seeking to stimulate its economy
PARIS: Economic growth in China and the United States could be 0.2-0.3 percent lower on average by 2021 and 2022 if the two countries do not row back on tit-for-tat tariffs in their dispute that has dampened the global economic outlook, the OECD said on Tuesday.
US President Donald Trump has raised tariffs on $200 billion on Chinese imports to 25 percent from 10 percent in the long-running trade row, while Beijing said it would hit back by lifting tariffs on $60 billion in US goods.
The global economy would grow by only 3.2 percent this year as growth in trade flows is nearly halved this year to only 2.1 percent, the Organization for Economic Cooperation and Development (OECD) said in its biannual Economic Outlook.
That would be the slowest pace of global economic growth since 2016 and was down marginally from the Paris-based policy forum’s last forecast in March for growth of 3.3 percent.
The world economy should fare slightly better next year with a growth rate of 3.4 percent, but only if the United States and China pull back from tariff hikes announced this month.
The OECD said growth in China and the United States could come in 0.2-0.3 percent lower on average by 2021 and 2022 if the two nations did not reverse course.
Without taking the latest round of tariff increases into account, the OECD forecast the United States would outpace other big developed economies with growth of 2.8 percent this year, up from the 2.6 percent the organization had projected in March.
The world’s biggest economy was seen slowing to 2.3 percent next year even if the new tariff hikes are not carried through.
China, which is not an OECD country, has been seeking to stimulate its economy but growth was still seen easing from 6.2 percent this year to 6.0 percent in 2020, the lowest rate in 30 years for the world’s second-biggest economy.
Global investors are closely watching to see how much more support Beijing will inject to shore up growth after China already loosened monetary policy, cut taxes and allowed local governments to issue special bonds to fund infrastructure projects.
Japan’s export-dependent economy is suffering from the drop in trade flows with growth expected at only 0.7 percent in 2019 and 0.6 percent in 2020, trimmed from the OECD’s March forecasts of 0.8 percent and 0.7 percent respectively.
The euro zone is also paying a heavy price for the global trade slowdown, with its growth seen this year at 1.2 percent before rising to 1.4 percent year. That was slightly better than the 1.0 percent and 1.2 percent expected in March as Italy’s downturn proves slightly less severe than previously expected
Meanwhile, the OECD raised Britain’s growth forecast to 1.2 percent this year from 0.8 percent previously, as the prospect of its exit from the European Union was pushed back. UK growth is expected to fall to 1.0 percent, marginally better than the 0.9 percent expected in March.