While most Persian Gulf countries replenish spent coffers with profits from rising oil prices, the region’s smallest economy is still in bailout territory.
Bahrain needs crude prices above $88 a barrel to balance its budget this year, according to the International Monetary Fund, the highest breakeven price in the six-member Gulf Cooperation Council and far above current levels around $75. It’s preparing to tap international debt markets in the coming months to finance a deficit that’s widened in the aftermath of the pandemic and left it lagging neighbors in the world’s top energy-exporting region.
“Ambitious reform is needed to address Bahrain’s large fiscal imbalances and there doesn’t seem to be the political will behind this currently,” said Scott Livermore, chief Middle East economist for Oxford Economics in Dubai. “The general consensus seems to be that Bahrain will need further Gulf backing in the medium term.”
Linked by a causeway to regional heavyweight Saudi Arabia, the tiny island kingdom was bailed out to the tune of $10 billion by wealthier neighbors as recently as 2018 but found itself back in trouble as a program to readjust its fiscal balance with measures such as subsidy cuts and a new value-added tax faltered when Covid-19 hit.
Bahrain’s situation looks particularly dire when compared to Oman, the Gulf’s other weak link. Investors used to demand a premium to hold Omani bonds over Bahraini. That reversed in March as Oman reaps the benefits of an economic overhaul launched last year by its new ruler. It’s also sought IMF help in developing a medium-term plan to guide its borrowing.
Bahrain’s Finance Ministry didn’t respond to a request for comment, but the minister, Sheikh Salman bin Khalifa al Khalifa, told Bloomberg last year that his priority, for now, was to restore economic growth rather than further boost revenue.
“We really want to see the recovery take hold before we take any additional steps in that regard,” he said.
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