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Bahrain begins talks with banks for possible debt sale

Bahrain debt sale

The Kingdom of Bahrain has started talks with banks for a possible debt sale in the second half of this year, informed sources revealed.

According to the sources, who declined to be identified, discussions are still preliminary.

The last time Bahrain tapped into the international debt market was in January, when it raised $2 billion.

After Bahrain has seen a sharp deterioration in finances over the past year, cash from debt sale would provide some relief.

The COVID-19 pandemic led to widespread shutdowns and curbed energy demand, sending Brent crude to its lowest level in nearly two decades.

Bahrain’s 2020 budget deficit of 1.6 billion dinars ($4.2 billion) was larger than the government had expected in its fiscal plan.

It is unclear whether the $10 billion package pledged by the neighbors in 2018, will be enough to maintain its finances.

In the past few weeks, both Moody’s Investors Service and Standard & Poor’s Global credit ratings downgraded the country’s outlook to negative.

 “The government remains committed to achieving a balanced budget over the medium term and will remain opportunistic in its approach to any funding requirements to take advantage of optimal market conditions,” a Ministry of Finance spokesperson said.

Demand improvement

Since the country’s last debt sale, demand for riskier assets has improved, with investors keen to protect themselves from the possibility of faster inflation with higher-yielding assets.

Oil has also risen, rising 38% this year to more than $70 a barrel, bringing the commodity closer to the country’s fiscal breakeven price, which the International Monetary Fund estimates at $88.

In a related context, the credit rating agency, Standard & Poor’s Global, had revised Bahrain’s outlook from stable to negative, noting that the reason for the decision was due to the pace of servicing financial obligations and external debt.

Ratings agency Standard & Poor’s Global said in a statement that the pace of financial reform is not enough to bring stability to Bahrain’s debt-to-GDP ratio over the next few years, despite the rise in oil prices compared to 2020.

Bahrain’s economy shrank 5.4% last year, according to International Monetary Fund estimates, with vital sectors such as energy and tourism affected by the pandemic.

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