Kuwait has emerged as the first Gulf Cooperation Council (GCC) state to make good on the promised financial assistance to Bahrain. In retrospect, four GCC countries agreed in 2011 to provide financial support of $10 billion (Dh36.72 billion) each to Bahrain and Oman over a span of 10 years.

The extraordinary scheme, dubbed GCC’s ‘Marshall Plan’, was approved following outbreak of unrest in Bahrain and Oman in the first quarter of 2011. Demonstrators in both countries, notably in Bahrain, pressed the authorities to find solutions to outstanding socio-political challenges such as greater participation in decision-making and broad socio-economic problems.

The Kuwaiti financial aid amounts to $2.5 billion and to be provided in tranches of $250 million over a span of 10 years.

The Kuwaiti cabinet approved the scheme in June, with the first tranche being part of fiscal year 2012-13. The fiscal year in Kuwait starts in April.

Interestingly enough, the Kuwait Arab Economic Development Fund, better known as the Kuwait Fund, signed the necessary agreements on behalf of the Kuwaiti government. This fund stands as for engaging administration of financial and technical assistance to developing countries.

Understandably, it was made clear from the onset that the promised aid package would address the more pressing economic challenges such as housing and infrastructure development. As such, the arrangement intends to provide financing for specific projects in coordination with a technical team from the Kuwait Fund. Gladly, no financing should be available for untimely or extravaganza projects.

In other words, the financial aid is designed to be invested in vital projects in Bahrain, namely, housing, road network, utilities, industrial projects and social development. Undoubtedly, the first tranche focuses on the housing challenge.

Not surprisingly, many locals could not afford buying and developing their own residential units reflecting personal financial constraints, and thus look to governmental support. Against this backdrop, a sizeable portion of the first tranche is intended for constructing some 6,600 residential units to the north and west of Manama, the capital.

Other amounts cover infrastructure works in the two housing projects as well as development of roads in numerous parts of the country, a water treatment plant and electricity distribution.

The amount of $2.5 billion is sizeable for a small economy like that of Bahrain. The country’s gross domestic product (GDP) stands at $26 billion. Still, the government’s total spending for fiscal year 2012 is projected at $8.5 billion.

Against this backdrop, the fund should provide spur different types of positive spillover effects to the local economy, the foremost of which is badly needed GDP growth. The IMF projects real, adjusted for inflation, GDP growth rate of 2 per cent in 2012, not impressive by virtue of being below the population growth rate.

However, the Economic Development Board (EDB), charged with overlooking and developing strategic choices for Bahrain’s economy, puts GDP growth levels between 4 and 5 per cent for the same year. It is possible that EDB’s projection is partly based on cash injunction of GCC financial aid.

In addition, the financial support should help putting a cap on a growing debt debacle in Bahrain, currently put at $11.6 billion or 44 per cent of the GDP.

Also, other spillover effects include helping overcoming the job challenge, with official statistics putting the unemployment rate at 4.3 per cent.

Still, commencement of GCC financial support could help overcoming Standard & Poor’s negative outlook of Bahrain’s economy. What’s more, the cash infusion is occurring in the absence of inflationary pressures.

A friend in need is a friend indeed typifies Kuwait’s ties with Bahrain.