The Kingdom and its allies announced in June that they were in talks over aid giving the country’s assets a much-needed boost.
Bahrain and its Gulf Arab allies are said to be making progress on an aid programme to help the island-Kingdom repair its finances and avoid a devaluation that could roil neighbouring markets.
Officials from Bahrain, Saudi Arabia, the United Arab Emirates and Kuwait are discussing a multi-year programme that would involve spending cuts and measures to increase non-oil revenue, including the introduction of a value-added tax, according to five people with knowledge of the matter.
The Arab Monetary Fund (AMF), an organisation modelled on the Washington-based International Monetary Fund, has been involved in the discussions, some of the people said. The fund, based in Abu Dhabi, may also help to monitor the programme’s implementation.
Bahrain’s economy is the smallest among the six members of the oil-rich Gulf Cooperation Council. But investors fear that without aid to help bolster low foreign-exchange reserves and cut ballooning debt, the tiny kingdom will be forced to abandon the dinar peg to the dollar, triggering speculation that its neighbours would follow suit.
Bahrain officials have repeatedly said they have enough reserves to maintain the peg.
The nation’s bonds were the hardest hit in the Gulf this year as investors worried that the implicit support Bahrain has from Saudi Arabia, Kuwait and the UAE would not materialise.
But the rally fizzled out this month as investors look for details of the aid package.
Officials in Bahrain, Saudi Arabia a well as the UAE and the Arab Monetary Fund, weren’t immediately available for comment. Kuwait’s Finance Ministry said it cannot comment on media speculation