Pressure eased on Bahrain’s bonds and currency on Wednesday after pledges of financial support from Saudi Arabia, the UAE and Kuwait.
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Bahrain has the highest pubic debt to GDP ratio in the Gulf.
The Bahraini dinar hit 17-year lows and sovereign bond yields rose as high as 8.95 percent earlier in the week, according to Reuters data, as the country’s deepening financial crisis led to fears that Manama might be unable to redeem a $750 million Islamic bond that will mature in November.
Fears subsided yesterday however, after an announcement that Bahrain, Saudi Arabia, the UAE and Kuwait would shortly announce “a program to enhance the stability of the financial situation in the Kingdom of Bahrain,” according to a statement from the Saudi Press Agency late on Tuesday.
Details and timing of the program have not been disclosed yet.
“We believe the package will likely include various measures to directly bolster Bahrain’s short-term financial position, which in turn will also be critical for restoring Bahraini
access to the foreign debt capital market,” Monica Malik, chief economist at Abu Dhabi Commercial Bank, told Arab News.
“This is likely to include GCC deposits with the Central Bank of Bahrain, alongside support for key projects in Bahrain, amongst other measures.”
The Bahraini dinar bounced to 0.37850 against the US dollar in early spot market trade, Reuters reported, after dropping as low as 0.38261 on Tuesday, moving away from its official peg of 0.37608 as hedge funds dumped Bahraini bonds.
Such currency fluctuations prompted the Central Bank of Bahrain to reiterate its commitment to maintaining the dinar’s peg to the dollar on Tuesday, insisting that the peg “remains an important policy and provides an anchor for monetary policy.”
The currency also recovered in the forwards market, which reflects expectations for its value in coming months, prompting investors to buy back Bahraini debt.
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