The UAE has approved a $2.5bn grant to Bahrain as part of the $10bn aid package promised by its GCC neighbours in March 2011 to help boost the economy after a two-year uprising slowed growth and dented confidence.

The funds will come from the Abu Dhabi Development Fund in the form of annual grants of $250m to be used for spending on housing, electricity and water, infrastructure and social services.

It is the third agreement to be reached, with deals already signed with Kuwait and Saudi Arabia to help support the Bahrain economy, which is expected to have a deficit of $1.8bn in 2013, according to the Finance Ministry’s initial budget, and a larger deficit the following year. In order to help trim the deficit, the 2013 budget envisages a 6 per cent spending cut from 2012 levels, after the government boosted spending in September 2011 by 19 per cent to help offset the economic impact of the uprising that at its peak brought central Manama to a standstill. Although the government attempted to crush the protest movement with the aid of troops from Saudi Arabia, opposition groups have refused to back down in their demands for more democratic reform.

Although business confidence has been damaged by the uprising, which flared again on the 14 February anniversary, ratings agency Standard & Poor’s recently took the country’s BBB credit rating off negative outlook. The long-awaited arrival of the GCC funds were a key factor in the rating change along with the high oil price and the agency’s view that the political situation would not get any worse.

In late December, the Saudi Fund for Development approved six grants totalling $448m to cover spending on housing, education and utility projects. The first country to approve the transfer of funds to Bahrain was Kuwait, which approved 10 annual transfers of $250m to fund housing, road, utility, industry and social projects in September.

The Finance Ministry said that it is still in talks with Qatar to arrange the final $2.5bn of the $10bn GCC support. Oman is not contributing to the funds as it was also promised a $10bn aid package by the other GCC states after experiencing its own uprising.