Khaberni - In a move reflecting the transition from managing to containing the economic response in the Gulf, Bahrain launched a comprehensive financial and monetary support package worth nearly $19 billion aimed at mitigating the impacts of the American-Israeli war with Iran on the local economy, with a direct focus on stabilizing the financial sector and protecting liquidity.
According to a report published by AGBI, the “Central Bank of Bahrain” announced a set of measures including the deferral of loan and credit card repayments for three months for individuals and companies, covering both the principal and interest.
The bank also granted banks greater flexibility in classifying affected loans, easing pressure on bank balance sheets and reducing the impact of deteriorating asset quality during the current volatility.
Extensive liquidity and monetary easing to support lending
These measures are based on a liquidity package totaling 7 billion Bahraini dinars, about $18.6 billion, where the “Central Bank” will provide unlimited financing in dinars to commercial banks for six months against eligible securities.
In the same context, the “Central Bank” extended the term of “Repurchase Agreements” (Repo) to three months and reduced the mandatory reserve ratio from 5% to 3.5%, freeing up more liquidity to support lending.
The measures also included easing regulatory liquidity requirements, by reducing both the “Liquidity Coverage Ratio” (LCR) and the “Net Stable Funding Ratio” (NSFR) from 100% to 80%, allowing a larger portion of liquid assets to be redirected towards credit activity and enhancing the credit cycle during the shock period.
This package comes under the directives of the Crown Prince of Bahrain, Prime Minister Prince Salman bin Hamad Al Khalifa, as part of a government effort targeting the minimization of the transfer of regional disturbances to the real economy.
An economy that showed resilience before the crisis
Prior to the outbreak of the crisis, the Bahraini economy had shown resilient indicators, as official data from the Ministry of Finance and National Economy indicated that the gross domestic product grew by 3.5% at constant prices in 2025, driven by a 4.1% expansion in the non-oil sector, despite a slight decline in oil activity.
Non-oil activities constituted more than 85% of the total output, with professional services, hospitality, and financial services sectors among the fastest-growing, reflecting the continued contribution of non-energy growth drivers in supporting economic activity.
Structural pressures and financial capacity limits
Nevertheless, Bahrain entered the crisis from a more financially vulnerable position compared to its peers in the Gulf Cooperation Council, with limited financial margins and high levels of public debt, according to the report.
The “International Monetary Fund” warned in January of the continued deterioration in Bahrain’s financial situation, where the deficit reached about 11% of the gross domestic product in 2024, while public debt rose to 134%, surpassing levels seen during the pandemic period.
Estimates indicate that the debt has risen further since the outbreak of the war, while foreign exchange reserves remain at about $4.7 billion, a level less than three months of import coverage, according to data conveyed by Justin Alexander, director of Khalij Economics consultancy.
