Bahrain is finalising a $500 million Islamic bond, said Central Bank of Bahrain Governer Rasheed Al Maraj.

The sukuk, would consist of a $250 million refinancing for an existing sukuk that matures in June, and a new $250 million issue, a source said.

The $500 million sukuk would be issued by the end of May.

'Bahrain will continue spending and growing over the next two years,' it was claimed.

'To do that, with oil prices falling, part of the expenditures will have to come through raising debt,' the source said.

Sukuk issuance took a hit last year, falling two-thirds to a three-year low of $15.77 billion, because of the global financial crisis and lower oil prices.

The kingdom plans to spend BD1.78 billion ($4.72 billion) this year and BD1.89 billion next year, under a budget recently passed by parliament.

Al Maraj also predicted a slowdown in growth for the economy which grew by around seven per cent last year. 'I think we will grow, but at a modest rate, at a lower rate,' he said.

Inflation, he added, was expected to fall to under 4 per cent.

Those predictions were in line with a prediction from Standard Chartered bank which sees inflation in the kingdom falling as low as 1.5 per cent this year.

The bank says that growth last year was 6.1 per cent but would fall to 2 per cent this year before rising to 3 per cent next year.

Inflation, which averaged 4.6 per cent last year would rise from 2.5 per cent this year to 3 per cent next year.

Bahrain's sovereign wealth fund said yesterday it did not expect to divest its holdings in local firms this year because of low market valuations.

Mumtalakat had been planning to sell-off assets in which it has a majority position and buy into foreign companies as part of a strategy to diversify its assets.

'It's not the right time now. It is more of a buyer's market,' chief executive Talal Alzain said.-TradeArabia News Service