Brace for funds flowing out of Bahrain

The Middle East crisis will see capital flowing out of the region, especially the vulnerable financial hub of Bahrain, according to a poll.

“Unrest in the region could trigger significant capital outflows from the Gulf in the short term and that governments would increase public spending in the coming months in order to calm or prevent popular unrest,” notes a Thomson Reuters poll of 16 economists.

The poll saw economists in a gloomy mood as they predicted the Omani and Bahraini economies to suffer, with growth estimates revised from 4.6% to 4.1% in the case of Oman, and from 4.2% to 3.4% for Bahrain, according to poll participants.

Ratings agency Standard & Poor’s notes that Bahrain’s declaration of martial law may polarize rather than stabilize a “highly charged political situation,” and that the unrest will probably damage Bahrain as a financial center and tourist destination. The ratings agency downgraded the country’s long-term foreign-currency credit rating to BBB, the second-lowest investment grade, from A-, on March 18. The outlook for the rating is negative, which means that more downgrades may follow.

There are also reports of funds flowing out of Bahrain to neighbouring UAE and elsewhere.

A banking source told Reuters he estimated 15 to 20 percent of deposits and investments of high-level Bahraini citizens in private banks had been withdrawn over the past few days.

“A lot of clients are pulling out their money, they’re moving it to London, Europe, wherever. It’s not a question of taxes, but of access to their money,” another banker from the region told Reuters.

“One client pulled out $30 million in a matter of days. With banks closed, movements are limited — we will see the rush when they reopen….In at least two or three banks, the bulk of the clients have shifted their money abroad,” a banker said.

“Some are moving it through the Emirates, then on to other centres. It makes the transaction less remarkable, as moving a big chunk of money from Bahrain to, say, London would raise eyebrows in this climate.”

Bahrain banks hold close to $200-billion in assets.

OTHER NUGGETS FROM THE POLL

1. Saudi Arabian GDP should rise to 4.5%.
2. The region may also have to contend with inflation especially in light of rising oil and food prices, especially in Saudi Arabia where inflation is expected to rise to 5.6%, according to poll participants.
3. Unfazed, Qatar will grow at 15.8%.
4. UAE inflation expected at 2.5%.AlifArabia’s aim is to offer a brutally frank but sincere analysis on the Middle East region’s business and political issues. It wants to see a thriving and dynamic Middle East that encourages corporate and government transparency, investments and policies that allow the economies to grow. More importantly, it stands for political, economic and social freedoms for the people living in the region. For questions, comments and feedback - critical or otherwise - please post your comments below or email alifarabia@gmail.com to find out more. Follow us on http://twitter.com/#!/AlifArabia