In recent months Bahrain’s capital outflows have compounded the balance of payments woes at a time when amortization of long-term debt was picking-up.
“We estimate gross external financing needs of $2-3.3 billion annually over 2018-2020. However, the financing gap itself would be about $5 billion per annum over 2018-2020 in the event of compromised market access, Arabian Business reported.
This would be taking into consideration financial account flows, assuming the financial account flows remain as large as those implied by January-April 2018 forex reserves data,” Jean-Michel Saliba, Mena Economist of Bank of America Merrill Lynch, said.
According to BofA Merrill Lynch, BoP data for 2017 suggests there was a $3 billion outflow from other investment (assets). This most likely represents corporates acquiring foreign assets as retail banks have been witnessing declining net foreign assets.
Monetary data also shows higher dollarization of non-government deposits and sharp decline in non-government deposit growth was meager at just 1.4% year on year, compared to 6.9% in November 2014.
“At the current pace of capital outflows, we estimate Bahrain’s FX reserves would be fully depleted by September. We estimate the FX reserves burn pace over January-April 2018 to be $0.4 billion per month, an acceleration versus previous years,” said Saliba.
Large financing needs, eroding financial buffers and the lack of details about a potential (Persian) Gulf Cooperation Council countries’ (Saudi Arabia, Kuwait, UAE, Qatar, Bahrain, and Oman) backstop have contributed to impaired market access.
Bahrain’s ability to issue external debt ran into difficulties already earlier this year. Slow progress on fiscal reforms, including delayed implementation of the value added tax, and ambiguity regarding the likelihood of support by fellow (P)GCC countries beyond the pledged funds for infrastructure projects, has contributed to lower investor demand for Bahraini government bonds.
