The small size of the Bahraini economy would make it relatively easy for its wealthier neighbouring states to bail it out.
Saudi Arabia, Kuwait and the United Arab Emirates will soon announce an integrated program to support Bahrain’s economic reforms and its fiscal stability, a joint statement from the three Gulf states said on Tuesday.
Bahrain’s finances have been hit hard by a slump in oil prices in 2014. On Tuesday, Bahrain’s dinar plunged to a 17-year low against the US dollar as hedge funds dumped Bahraini bonds because of concern about rising public debt.
Many bankers said expectations that Saudi Arabia and perhaps other regional allies of Bahrain would eventually provide it with additional financial support were preventing worse instability in the markets.
The three wealthy Gulf states said in a statement sent to Reuters late on Tuesday that they are in talks with authorities of Bahrain to enhance the financial stability of the Kingdom.
They said they were in discussions “to confirm their commitment to consider all options to support the kingdom of Bahrain and to finalize an integrated program that will soon be announced to enable the kingdom of Bahrain to support its economic reforms and fiscal stability.”
Bankers and officials in the Gulf previously told Reuters that Bahrain has been discussing for over a year the possibility of obtaining such aid from Saudi Arabia and other Gulf Cooperation Council countries.
The small size of the Bahraini economy would make it relatively easy for its wealthier neighbouring states to bail it out, which could protect their own economies from the risk of contagion. Manama has projected a state budget gap of $3.5 billion in 2018.