BAHRAIN: Austerity will fall short of targets and more Gulf funding will be needed

GULF COUNTRIES - Report 29 Oct 2019 by Rory Fyfe and Justin Alexander

We don’t think that Bahrain’s ambitious Fiscal Balance Program will come close to its targets due to austerity fatigue and sharply lower oil prices. Instead, the deficit will remain around 5-7% of GDP, and debt-to-GDP will rise to 110% by 2022, requiring about $15bn in financing in 2019-22.

Bahrain also has around $16bn in debt rollover requirements by 2022, bringing its total financing requirements to $31bn (70% of GDP). About $7bn remains from the GCC bailout pledged last year which, together with the recent $2bn bond, covers a third of that financing requirement, but the authorities will have to return to the market and probably the GCC partners for the remaining $22bn.

Support for Bahrain will remain a high priority for the GCC, particularly Saudi Arabia, given concerns about potential Iranian influence and contagion if Bahrain were to face a crisis. Longer term, Bahrain is hoping that shale oil reserves will help rebalance its fiscal account.

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