The Central Bank of Bahrain said on Wednesday it raised its key policy interest rate on its one-week deposit facility by 75 basis points (bps) to 4%, moving in parallel with the U.S. Federal Reserve's hike as the Bahraini dinar is pegged to the dollar, Reuters reported. CBB also hiked by 75 bps the overnight deposit rate to 3.75%, the four-week deposit rate to 4.75% and the lending rate to 5.25%.
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Bahrain
Oman and Bahrain are stuck on the sidelines of the international debt markets after a record borrowing tally by Gulf Arab economies this month underscored a divide between the region’s strongest and weakest sovereigns, Bloomberg News reported. Facing external financing needs that Goldman Sachs Group Inc. estimates at $5.5 billion this year, Oman and Bahrain are all but shut out from bond funding, waiting for their yields to retreat before wading into the market.
As the coronavirus crisis deepens in emerging economies around the world, collapsing currencies, commodity prices, export earnings and tourism revenues threaten to shred the finances of many governments, leaving them scrambling to avoid default, the Financial Times reported. Zambia has already called in advisers to restructure its debt while Ecuador has asked for more time to make coupon payments on three dollar bonds. Few analysts believe they will be the last.
Saudi Arabia, along with Kuwait and the United Arab Emirates, came to the rescue of Bahrain last year when a prolonged period of lower oil prices pushed its public debt to nearly 93 percent of annual economic output, Reuters reported. Their $10 billion bailout pledge, along with Bahrain’s inclusion in JPMorgan’s emerging market indexes, have transformed its bonds from a busted bet to a boon for investors. The price of Bahrain’s 2028 dollar bonds has risen by a third from a record low last June when the country looked in danger of default.
Bahrain went from being a bond-market pariah to a darling this year after its Gulf neighbors came to its rescue to ward off any default. But falling oil prices have brought the island kingdom’s finances into focus again, Bloomberg News reported. After outperforming its Gulf peers in the third quarter, Bahrain’s dollar debt has been hurt by crude’s slump in the past two months. Investors are concerned about the government’s ability to put its austerity plan into action, with oil prices well below what it needs to balance its budget.
Bahrain’s credit risk declined to the lowest level in five months on optimism the nation’s neighbors will soon come to the island-state’s rescue with an aid package, Bloomberg News reported. The cost of insuring Bahrain’s debt against default fell 34 basis points last week on relief that Saudi Arabia, the United Arab Emirates and Kuwait were said to be considering a $10 billion plan. The contracts closed at 307 basis points on Friday, the lowest since May and about half the level in June, when concern over the country’s finances spurred a sell-off of Bahraini assets.
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Bondholders’ relief over a Gulf pledge to prop up Bahrain’s struggling economy has given way to anxiety now that three weeks have passed without any sign aid is on the way, Bloomberg News reported. Saudi Arabia, Kuwait and the United Arab Emirates are waiting for Bahrain to submit its proposal for economic reforms before giving any money to the cash-strapped nation, according to three people familiar with the issue, who declined to be identified because of the sensitivity of the discussions.
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Bahrain hired investment bank Lazard Ltd. to advise on how to repair its strained public finances, according to people with knowledge of the matter, as the island kingdom seeks to secure crucial support from rich neighbors to avoid a currency devaluation, Bloomberg News reported. Lazard is helping Bahrain evaluate fiscal reforms to help ease pressure on the state’s budget, the people said, asking not to be identified because the details aren’t public. The options include raising capital from international markets, one of the people said. Bahrain’s Eurobonds dropped after the report.
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Bahrain said Wednesday its Gulf neighbors Kuwait, Saudi Arabia and the United Arab Emirates will offer new aid to strengthen the island nation's "fiscal stability" amid growing concerns over its economy, the International New York Times reported on an Associated Press story. Bahrain, just off the coast of Saudi Arabia, long has relied on the largess of its wealthy neighbors to support it despite being the first Arab nation in the Persian Gulf to strike oil.
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The absence of any signal of financial aid from Bahrain’s neighbors sent the kingdom’s credit risk rising the most in emerging markets this month, Bloomberg News reported. The cost of insuring Bahrain’s debt against default for five years jumped 170 basis points on Monday, the most since records began in 2008, to 609. That’s the highest among emerging-market peers after Lebanon. The dinar, whose peg to the dollar has been effectively unchanged since 1980, fell a fourth day in the onshore market to the weakest level since at least 1988.
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