Bahrain said it received $2.3bn last year and is expecting another $2.28bn 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 $10bn to support the country’s funding requirements as it embarks on a fiscal programme 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 neighbours’ bailout.
A statement from the government’s media directorate, quoting a finance ministry representative, said “the first instalment had been received in full, and that receipt of the second instalment has already started”.
The Gulf kingdom said is set to receive further payments of $1.76bn in 2020, $1.85bn in 2021, $1.42bn in 2022 and $650m in 2023.
The statement added that the year-on-year budget deficit would fall from 6.2 per cent of GDP in 2018 to 3.4 per cent in 2019 and further to 2.1 per cent 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 neighbours.
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 neighbours, Bahrain embarked on a series of reforms last year, among them imposing a 5 per cent 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 Shi’ite-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.