Bahrain and its GCC allies, along with the Arab Monetary Fund, are making progress on discussions that will lead to a multi-year aid programme that involves spending cuts and measures to boost the kingdom’s non-oil revenue.

According to news agency Bloomberg, the Arab Monetary Fund may “also help monitor the programme’s implementation.”

MEED understands the news reversed the decline in Bahrain’s dollar-denominated bonds, for which the yield on securities are due in 2028.

Saudi Arabia, Kuwait and the UAE said in June that they expect to announce an integrated programme to enhance Bahrain’s fiscal situation.

In a statement, the three countries said “they are in discussions with the authorities …. to enhance the stability of the financial situation in [the] Kingdom of Bahrain and to confirm their commitment to consider all options to support the kingdom.”.

However, growing investor uncertainty on details of the aid programme has led to the bond’s recent decline.

The Bahraini dinar, the local currency, sank to a 17-year low – at 0.38261 to the dollar – on 26 June. This followed hedge funds’ dumping of Bahraini bonds because of concern about the country’s rising public debt.

The Washington-based International Monetary Fund (IMF) said earlier this month that Bahrain’s public debt had increased to 89 per cent of its gross domestic product (GDP), while its current account deficit remained unchanged at 4.5 per cent.

Bikas Joshi, who headed the most recent IMF mission to Bahrain, noted that the country’s reserves remain low, covering only one and a half months of prospective non-oil imports at the end of 2017.

IMF urged Manama to continue with economic reforms, including the implementation of value-added tax (VAT), to avoid stagnation of its non-oil revenue.

In addition to rising public debt, Bahrain is also struggling with a substantial fiscal deficit, which is expected to reach 11 per cent of GDP this year.