In common with other oil-producing Gulf states, Bahrain is facing a financial crunch with a forecast deficit of BHD1.2 billion (US$3.2 billion) this year, following a 5.4% slump in GDP last year.

Bahrain expects growth of 5% in 2021 and is basing its budget on an oil price assumption of US$50/b, but will be reliant on a doubling of contributions to state coffers from the sovereign wealth fund Mumtalakat. In 2021, the IMF forecasts crude prices at around US$40-50/b, which are significantly below the US$83.4/b required to breakeven. Public debt rose from 102% in 2019 to 133% in 2020, according to the IMF which has warned the country to make a concerted effort to reduce debt after the pandemic abates.

The US$19 billion fund and support from GCC states are crucial to the island state’s economic stability and, in turn, the currency peg. Mumtalakat’s assets coupled with GCC support from a US$10 billion bailout awarded by Saudi Arabia, the UAE and Kuwait in 2018 should help cover Bahrain’s foreign currency obligations, but any further liquidity problems will require further support. Global SWF data shows that the fund holds around US$4 billion in cash and public equities. Over 37% of Mumtalakat’s portfolio sits outside of Bahrain.

Bahrain is not the only GCC state looking to its SWF to pull through the crisis. Last month, the Kuwaiti government sold its last performing assets – worth a total of US$14.7 billion – to the US$559 billion Kuwait Investment Authority (KIA) in a bid to bridge its yawning budget deficit as it struggles to pay its bills. The Kuwait Investment Authority’s (KIA) General Reserve Fund (GRF) is highly depleted, but the government is unable to dip into its Reserve Fund for Future Generations (RFFG) without parliamentary authorization. An estimated US$15 billion of GRF money was burned through the fiscal effects of the pandemic alone, according to some estimates.

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Related funds KIA Mumtalakat