Bahrain Has Enough Reserves to Keep Dollar Peg, Al-Maraj Says

(Bloomberg) -- Bahrain has enough foreign reserves to maintain its currency’s peg to the U.S. dollar, central bank Governor Rasheed Al-Maraj said, as higher oil prices help the island-kingdom ease pressure on its strained public finances.

Al-Maraj, speaking in an interview on Wednesday in the capital Manama, said he wasn’t aware of any current talks between Bahrain and its Gulf Arab allies over financial support that could help the country avoid devaluation. “At this level we have adequate reserves to maintain the peg,” he said.

Bahrain has been one of the most vulnerable Gulf economies to the slump in oil prices that started in 2014, with authorities seen slower to react than countries such as Saudi Arabia. Foreign assets dropped in February to the lowest level in six months and the International Monetary Fund expects Bahrain’s debt to exceed 100 percent of economic output in 2019.

In November, Bloomberg News reported that Bahrain had asked Saudi Arabia, the United Arab Emirates and Kuwait for support. The countries responded by requesting Bahrain do more to bring its finances under control in return for the money, people with knowledge of the matter said on condition of anonymity.

“Not to my knowledge at this time,” Al-Maraj said when asked about the talks. He said the government has taken “many initiatives over the last few months on the spending side.”

“This will continue as we are very conscious of the importance of having a sustainable fiscal policy,” he said.

In addition to spending cuts and the reduction of subsidies, Bahrain will impose a value-added tax next year to help generate revenue, he said, following Saudi Arabia and the U.A.E.

Bahrain has been relying on debt sales to finance budget and current-account deficits. It scrapped a bond sale in March after investors sought higher yields, but raised $1 billion from Islamic securities.

Al-Maraj said authorities were waiting for the right time to tap the bond market again when the current “volatility,” subsides. Rising oil prices give policy makers “more comfort,” he said.

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