Gulf allies pledge billions in aid deals for Bahrain and Jordan

The Bahrain World Trade Center - Credit Bloomberg

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Assistance to Bahrain will be spread over five years and will include loans, deposits as well as grants, for Jordan the aid will include a $1 billion deposit in the central bank.

Thursday 04, October 2018

(Bloomberg) Gulf Arab allies will pledge $10 billion in aid to Bahrain and finalise $2.5 billion in assistance for Jordan on Thursday, in an effort to stabilise their fragile finances through years of planned economic reforms.

Support for Bahrain should help avert a currency devaluation that investors fear could force other countries in the oil-exporting region to follow suit. It should also allow the tiny Gulf kingdom, a close Saudi Arabia and US ally, to borrow from international debt markets at cheaper interest rates.

The yield on Bahraini bonds maturing in 2028 pared gains after the news.

“The headline number is very encouraging, and alleviates the risk of any short-term dislocation,” said Mohieddine Kronfol, Franklin Templeton Investments’ chief investment officer for global Sukuk and Middle East and North Africa fixed income, noting additional information was needed to address sustainability concerns. “Some good news we could all use today.” Bahrain’s economy, the smallest among the six members of the oil-rich Gulf Cooperation Council, had been hit hard by lower crude prices since 2014.

The deal follows months of negotiations over Bahrain’s planned fiscal overhaul, which is expected to involve spending cuts and measures to increase non-oil revenue, including the introduction of value-added tax. The country has been relying on bond markets to finance its budget and current-account deficits and replenish its foreign-currency reserves. Authorities scrapped a bond sale in March after investors sought higher yields, but raised $1 billion from Islamic securities.

Asked about the Bahrain aid plan, Kuwait’s Finance Ministry said it doesn’t comment on stories based on unnamed sources. Officials in Saudi Arabia, Bahrain and the UAE did not immediately respond to requests for comment. Gulf finance ministers will head to Bahrain from Amman, where they announced a separate aid package for Jordan. Saudi Arabia, Kuwait and the UAE will deposit $1 billion in Jordan’s central bank, and offer the kingdom a $600 million loan guarantee and $150 million in budget aid annually for five years, according to a Saudi Finance Ministry statement.

The aid is part of a $2.5 billion package pledged to Jordan in June after a proposed income-tax increase sparked some of the largest protests since the Arab Spring uprisings of 2011. The funds will give Jordan’s government breathing room to implement fiscal reforms aimed at reducing the budget deficit and stabilising an economy strained by the influx of 1.5 million refugees. Tax increases were among reforms agreed with the International Monetary Fund in 2016 under a $723 million loan programme.

TAGS : GULF AID, Bahrain, Jordan, Sukuk

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