JEDDAH: Saudi Arabia, the UAE and Kuwait stepped in on Wednesday with pledges of financial support to avert a debt crisis in Bahrain.
The three Gulf allies said they were in discussions on an aid package and other options “to enable the kingdom of Bahrain to support its economic reforms and fiscal stability.”
The promise of support immediately eased fears that Manama may be unable to redeem a $750 million Islamic bond that will mature in November, and the dinar rose in value against the US dollar.
“We believe the package will 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 will probably include GCC deposits with the Central Bank of Bahrain, alongside support for key projects in Bahrain.”
Bahrain’s bonds and currency have come under mounting pressure in recent days, amid concern at the state of the country’s finances, which have been hit hard by the fall in oil prices since 2014.
Leading analysts told Arab News that support for Bahrain made both political and economic sense. Dr. Hamdan Al-Shehri, a Saudi political analyst and international-relations scholar in Riyadh, said Saudi Arabia had always stood “like a rock” behind Bahrain.
“When Bahrain was facing unrest engineered by Iran in 2011, it was Saudi Arabia that came to the rescue by sending troops as part of the Peninsula Shield Force,” he told Arab News.
“So it is not just economic support, but Saudi Arabia is with Bahrain politically, providing all support, including security cover.
“Bahrain is part of the Gulf Cooperation Council, and so the Gulf states, led by Saudi Arabia, will not let it fail on any front. The safety, security, financial stability and territorial integrity of Bahrain are paramount for Saudi Arabia and the UAE.”
Hafed Al-Ghwell, a senior adviser at the international economic consultancy Maxwell Stamp and the geopolitical risk advisory firm Oxford Analytica, said the pledge of support to Bahrain was “a smart and strategically important decision.”
“It will not only help Bahrain gain more control over its public finances, but it will also strengthen the united front of the Gulf countries during their defensive moves against the expanding role of Iran in the region,” he told Arab News.
“It will demonstrate with actions, not just words, their strong alliance in restoring investor confidence and financial stability.”