Bahrain still waiting for share of $20bn fund



A US$20 billion fund planned by Arabian Gulf 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.

"The Development Fund has not [yet] been capitalised," the Bahrain government said in the preliminary prospectus, dated June 19.

Foreign ministers from six Arabian Gulf countries announced the fund's creation in March 2011, to help Bahrain and Oman combat social unrest.

The two countries were each to receive a grant of US$10 bn (Dh36.73 bn), over 10 years.

The fund will be sponsored by Gulf Cooperation Council members: Saudi Arabia, the UAE, 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 $1.6bn already allocated in the state budget for 2011 for priority projects," the prospectus said.

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

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 $7.6bn in 2011 from $7bn in the previous year, reaching its highest level since at least 2008. But it was much lower than the $8.3bn 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 $7.5bn in 2011 from just $5.8bn in 2010.

Bahrain, which has been plagued by social unrest for over a year, as protesters from the Shiite Muslim majority demand democratic reforms from the Sunni ruling family, relies on output from Saudi Arabia's Abu Safa oilfield for some 70 per cent of its budget revenue.

The field's current production level is just below 300,000 barrels per day, of which Bahrain currently receives 50 per cent.

"However, no assurance can be given that the current level of output that Bahrain receives from the Abu Safa oilfield will be maintained," the prospectus added.

The government plans to spend a record $9.8bn this year after boosting its original plan by nearly 19 per cent last September. The revenue expectation was also revised upwards to $6.7bn, from an initial $6.3bn. The expected deficit for 2012 was changed to $3bn from $1.9bn 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 Bahrain needs to balance its budget jumped to $114 per barrel in 2011, the highest level in the Gulf, from $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 could give the small state more oil from the Abu Safa field if Manama's budget runs into trouble.

Our legal consultant

Name: Hassan Mohsen Elhais

Position: legal consultant with Al Rowaad Advocates and Legal Consultants.