Saudi Arabia, the UAE and Kuwait bail out Jordan and Bahrain
LONDON - Saudi Arabia, the United Arab Emirates and Kuwait deposited $1 billion in Jordan’s Central Bank and pledged $10 billion to support Bahrain to help both countries deal with financial difficulties.
The countries announced the move October 4 when their finance ministers were in Jordan to finalise the deal agreed to in June.
The financial aid package includes $600 million in World Bank guarantees. Riyadh, Abu Dhabi and Kuwait City would each contribute $50 million to build schools in Jordan.
A source told Thompson Reuters that Kuwait placed $500 million in Jordan’s Central Bank and $330 million was received on October 4 from Saudi Arabia.
“It will consolidate financial and monetary stability and confidence in the Jordanian economy and spur growth,” Central Bank of Jordan Governor Ziad Fariz told Reuters. “This will bolster the reserves and allow the treasury to implement its projects to provide better services with the least burden possible.”
Jordan has struggled to curb its debt since securing a $723 million loan from the International Monetary Fund (IMF) in 2016. Austerity measures, including a new income tax law tied to the IMF loan, saw prices of basic necessities rise, leading to angry demonstrations that forced the prime minister to resign.
Thousands of Jordanians gathered at the Professional Associations Complex in Amman on May 30 and shouted slogans against the government and the income tax law. Private businesses displayed signs stating: “This shop is against the new income law and we are with the strike.”
Jordanian King Abdullah II intervened on June 1 and stopped the government from raising fuel and electricity prices, calming the situation.
The demonstrations worried Gulf countries fearing that instability in Jordan, which has long backed US foreign policy positions, could have repercussions on their own security.
Saudi Arabia, the United Arab Emirates and Kuwait also agreed to give Bahrain $10 billion to support the country’s funding requirements through a long-term, interest-free loan, a source familiar with the agreement said.
Bahrain is expected to receive up to $10 billion in financial support, Kuwait’s Al Rai newspaper reported. “A Gulf decision at the highest levels was taken to start the execution steps for a programme to support the financial stability of Bahrain,” a gulf diplomatic source told the newspaper.
Reuters reported that a $10 billion package would be worth about one-quarter of Bahrain’s annual GDP and 28% of public debt and cover more than two years of state budget deficits, going by IMF projections.
Bloomberg News said the aid programme would involve spending cuts and measures to increase non-oil revenue, including the introduction of a value added tax. The extra funds would help Bahrain borrow from international debt markets at cheaper interest rates.
The Bahrain government announced a package of reforms expected to create $2.1 billion in annual savings and eliminate its budget deficit by 2022. Manama projected a $3.5 billion budget deficit in 2018. Authorities said they are looking to increase non-oil revenues to drive economic growth, diversify government income streams and align non-oil revenue with economic growth.
The two aid packages should not be a major strain on the finances of Riyadh, Abu Dhabi or Kuwait City with the price of Brent oil at approximately $80 a barrel. All three countries have hundreds of billions of dollars in their sovereign wealth funds.