Bahraini Lakes reveals: Bahrain borrows $2 billion by selling bonds to fill the budget deficit

A document obtained by Bahraini Lakes revealed that Bahrain would borrow two billion dollars by selling bonds in light of the worsening economic deficit.

The document showed that Bahrain would raise two billion dollars from selling three-tiered bonds to fill a financial deficit exacerbated by the Coronavirus pandemic and low oil prices.

According to the document issued by one of the banks arranging the transaction, Bahrain has set an initial indicative price at about 4.875% for the tranche for seven years, about 5.75% for 12-year bonds, and about 6.75% for 30-year bonds.

Bahrain had appointed a group of banks to arrange the sale of multi-tranche dollar-denominated bonds.

A bank document showed that Bahrain had hired ABC, Citi, Gulf International Bank, HSBC, JP Morgan, National Bank of Bahrain and Standard Chartered to arrange calls with investors starting Tuesday.

The document stated that this would be followed by a multi-tiered version of standard size with a term of seven years, 12 years and 30 years depending on market conditions.

The record size generally means that it will not be less than $500 million.

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A few days ago, the Minister of Finance and National Economy, Salman bin Khalifa Al Khalifa, revealed that the interest of the debt in 2021 in the new budget represents more than 700 million dinars, and the amount will exceed 750 million dinars in 2022.

He said that the public debt would begin to decline gradually after reaching the balance between revenues and expenditures within the fiscal balance program during the medium-term plan drawn up by the government.

Raise the debt ceiling

Public debt benefits are the largest item in the state budget. The government, headed by the Crown Prince, decided to raise the public debt ceiling to 15 billion dinars to cover the budget deficit.

This constitutes about 131% of Bahrain’s GDP, increasing about two billion dinars over last year.

According to these figures, the government exceeded the public debt ceiling set in 2017 by only 13 billion dinars, in the absence of financial oversight from the legislative authority.

The government subsequently issued (August 25, 2020) a law to raise the public debt ceiling to 15 billion dinars.

The economic problems in Bahrain were exacerbated by the corruption of the political system, and the Khilafite rule, whose members and influential people deliberately overpowered some of them in building private empires from the people’s money.

These problems were exacerbated by the Coronavirus outbreak and the sharp decline in oil prices, which lost 25% of its value due to the price war that Saudi Arabia launched against Russia in March.

According to official figures, this led to a 29% decline in government revenues in the first half of the year, as oil revenues recorded a drop of 35%, while non-oil revenues declined 13%.

Decline in foreign reserves

On the other hand, foreign currency reserves fell to 290 million dinars ($768.82 million) in April, the lowest level of foreign currency reserves since 1990, according to figures issued by the Central Bank of Bahrain.

But it rose again in May (amounting to $1.8 billion) after Bahrain sold $2 billion in bonds.

The steep drop of nearly $2.7 billion (or 78 per cent) between February and April reflected the exceptionally high risks of Bahrain’s external vulnerabilities.

Bahrain borrowed $1 billion in March, but the borrowing was to pay off $1.25 billion in bonds.

Bahrain returned to issue $2 billion of bonds in May and was able to sell them in two tranches consisting of four and a half-year bonds and a traditional ten-year bond.

It also managed to sell $2 billion in bonds for the second time in September, one for seven-year bonds and the other for a conventional 12-year bond.

This year, the government resorted to the unemployment insurance fund again (last year the government resorted to the fund to finance retirees’ dues, and drew 230 million dinars from it).