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Bahrain in tenuous position as foreign reserves dip to alarming levels

Bahrain has asked Gulf Arab allies for financial assistance as it seeks to replenish its foreign-exchange reserves and avert a currency devaluation that could reverberate across the region, according to people with knowledge of the talks.

Bloomberg’s Alaa Shahine said that Bahrain’s foreign reserves at the Central bank have dipped to $1.6bn at end August, and that the IMF expects that by year’s end, the country will have just enough to cover about 1 month worth of imports, which are very dangerously low levels.

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“You don’t see that danger reflected in Bahraini assets because of a sense of expectations that a Saudi Bailout will materialise to avoid a potential currency devaluation.

As for the ripple effects on the region, he said though Bahrain is a small economy, the entire region is under pressure.

“You have some people predicting a contagious risk, where investors start looking from one market to the next to see who is the next risky country, and today Oman is very volatile, for example,” Shahine said.

He adds: “Saudi with its vast foreign reserves, was still under pressure in 2015 and some parts of 2016, because people thought the country wouldn’t sustain the (Dollar) peg.”

He said it is was an unusual twist that these countries have asked Bahrain to reform its finances.