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Gulf $20 billion aid fund not yet capitalized-Bahrain

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Bahrain expects allocation from Gulf fund soon; Budget deficit $83 mln in 2011, lowest in 3 years; Spending at $7.6 bln in 2011, seen at $9.8 bln in 2012; Oil prices well below budget break-even point

June 20, 2012 5:46 by



A $20 billion fund planned by wealthy Gulf Arab states to aid Bahrain and Oman has not been capitalised yet, but Bahrain expects to receive an allocation soon, a prospectus for the country’s upcoming sovereign bond issue said.

“At the date of this prospectus, the Development Fund has not been capitalised,” the Bahrain governmentsaid in the preliminary prospectus, dated June 19 and seen by Reuters on Wednesday.

Foreign ministers from six Gulf Arab oil exporting countries announced the fund’s creation in March 2011, in order to help Bahrain and Oman combat social unrest spreading across the Middle East.

The two countries were each supposed to be given a grant of $10 billion, spread over 10 years, for development and social projects. The fund will be sponsored by the wealthier Gulf Cooperation Council members: Saudi Arabia, the United Arab Emirates, Kuwait and Qatar.

“The government has not relied on the Development Fund for its current budget allocation and any sums received from the Development Fund will be in addition to $1.6 billion already allocated in the state budget for 2011 for priority projects,” the prospectus said.

Bahrain also said its government budget deficit shrank to $83 million in 2011, the lowest shortfall in three years and well below a projected budget gap of $3.3 billion, because oil prices were higher than expected.

The 2011 shortfall accounts for mere 0.3 percent of gross domestic product, according to Reuters calculations. The budget gap was $1.2 billion, or 5.6 percent of GDP, in 2010.

Bahrain, a small non-OPEC oil exporter, saw an average oil price of $105 per barrel in 2011, well above the $80 which it assumed in its budgets for both 2011 and 2012.

Budget expenditure rose to $7.6 billion in 2011 from $7.0 billion in the previous year, reaching its highest level since at least 2008. But it was much lower than the $8.3 billion of spending which had been planned, because of smaller-than-projected expenditure on infrastructure projects.

“A similar trend is expected for projects expenditure budgeted for 2012,” said the prospectus.

Revenue jumped to $7.5 billion in 2011 from just $5.8 billion in the previous year.

 

SPENDING RISE

Bahrain, which has been plagued by social unrest for over a year, as protesters from the Shi’ite Muslim majority demand democratic reforms from the Sunni ruling family, relies on output from Saudi Arabia’s Abu Safa oil field for some 70 percent of its budget revenue.

The field’s current production level is just below 300,000 barrels per day, of which Bahrain currently receives 50 percent, the prospectus said.

“However, no assurance can be given that the current level of output that Bahrain receives from the Abu Safa oil field will be maintained,” the document added.

The government plans to spend a record $9.8 billion in 2012 after boosting its original plan by nearly 19 percent last September. The revenue expectation was also revised upwards to $6.7 billion, from an initial $6.3 billion.

The expected deficit for 2012 was changed to $3.0 billion from $1.9 billion in the original projection because of higher spending, the prospectus said. The budget for 2013-2014 is awaiting cabinet approval, it added.

Soaring government spending on wages and other social measures has made Bahrain vulnerable to any extended drop in crude oil prices. The oil price which Bahrain needs to balance its budget jumped to $114 per barrel in 2011, the highest level in the Gulf, from just $80 in 2008, the International Monetary Fund said in April.

Brent crude oil is now trading around $95 per barrel, having dropped sharply in the last few months. Analysts have said, however, that Saudi Arabia, which supports Bahrain’s Sunni rulers politically, could give the small state more oil from the Abu Safa field if Manama’s budget runs into trouble.

A Reuters poll in March forecast Bahrain’s 2012 budget gap at 3.7 percent of GDP, while economic growth was expected to pick up to 3 percent this year from 2.2 percent in 2011. The country’s external debt stood at just 14 percent of GDP at the end of March.

The Bahraini sovereign bond is expected to be issued after investor roadshows end next week.



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