February 26, 2019 / 11:53 AM / 3 months ago

UPDATE 2-Bahrain has "come a long way" on budget deficit, vows more reforms-central bank

(Adds quotes, detail)

By Davide Barbuscia and Lisa Barrington

MANAMA, Feb 26 (Reuters) - Bahrain has “come a long way” in tackling its budget deficit and is committed to more reforms following last year’s $10 billion aid package from Gulf allies, the central bank governor said on Tuesday.

Bahrain last year released a plan to help it avert a debt crisis, a series of fiscal reforms linked to the package from Saudi Arabia, Kuwait and the United Arab Emirates.

The first payment was made after the aid deal was signed last year and “the programme will continue as we unfold our different action plans”, Rasheed Mohammed al-Maraj said at a conference in Manama, declining to give more details.

“I think we have come a long way now with the fiscal balance programme. It has put out a clear plan to the market about how we are going to deal with our budget deficit and public debt.”

Bahrain does not have the vast oil wealth of other Gulf Arab states and its revenues have declined since the 2014 slump in oil prices.

As well as introducing a value-added tax in January, the government has cut subsidies, raised fees and is pushing economic diversification and inward investment programmes.

Authorities are hailing the decision of Amazon Web Services to locate its Middle East hub in Bahrain, due to open early this year, as an example of the sort of investment they want more of.

Bahrain in April announced the country’s largest oilfield discovery since 1932, but it is not known how much could be commercially extracted.

“The oil industry is a blessing, but it should not take away from the reforms we are making or the overall diversification strategy,” said Khalid al Rumaihi, chief executive at Bahrain Economic Development Board, an investment promotion agency.

This month the finance minister said the government had managed to cut the deficit by 35 percent from the 2017 figure of $3.5 billion. Bahrain’s cabinet on Monday approved a draft state budget for the next two years that projects a further reduction in its deficit to $1.63 billion by 2020.

Bahrain’s latest official fiscal deficit to GDP ratio was 10.3 percent in 2017.

The central bank governor said Bahrain expects its economy to grow between 2.0 and 2.5 percent in 2019, in line with last year’s pace.

After oil prices plunged, Bahrain increasingly relied on external funding to refill its state coffers. Last March it had to cancel a planned sale of international conventional bonds as investors demanded higher yields.

Governor al-Maraj said the $10 billion aid package has not removed the need for fundraising this year, but debt would be raised in smaller amounts than in previous years. Financing plans for this year will be decided after the budget is approved, he told reporters.

Al-Maraj reiterated that the currency’s peg to the U.S. dollar was the anchor of the central bank’s monetary policy and would remain so. (Reporting by Davide Barbuscia and Lisa Barrington; Writing by Saeed Azhar; Editing by Kevin Liffey and Peter Graff)

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