Moody's is concerned that the decline in the foreign reserves of the Kingdom of Bahrain threatens the exchange rate of the local currency and its pegging to the dollar, which requires attracting additional capital flows during the current year.
According to the agency, Bahrain's ability to attract more net capital inflows this year, including external government borrowing, will be necessary to maintain the currency peg (dinar) and avoid depleting reserves.
The central bank's reserves of foreign currency declined in March and April, despite the significant increase in net foreign liabilities of local banks in the first quarter by about $2.6 billion.
Central bank data showed that Bahrain's foreign exchange reserves fell by more than half between February and March, revealing that the reserve continued to decline to 290 million dinars ($768.82 million) in April, the lowest level of reserves since 1990.
Reserves rose in May to $1.8 billion, after Bahrain issued $2 billion in bonds. According to the agency, the sharp drop, which reached nearly $2.7 billion (or 78 percent) between February and April, reflects the exceptional rise in the risks of Bahrain's external weaknesses, touching on the pressures facing the linking of long-standing exchange rate, amid very few foreign currency fenders.
Source (Anatolia Agency, Edited)
