DUBAI- Bahrain is planning its second foray into the debt capital markets this year, two sources familiar with the matter said, as the tiny oil-dependent Gulf state seeks to bolster its fragile public finances.

Bahrain sent a request for proposals to banks to arrange a potential issuance of U.S. dollar-denominated benchmark bonds, the two sources familiar with the matter said. Benchmark deals are generally upwards of $500 million.

One of the sources said the deal may include both conventional and Islamic bonds, or sukuk.

The finance ministry did not immediately respond to a request for comment.

The small oil producer, which was bailed out in 2018 with a $10 billion aid package from its wealthy Gulf neighbours to avoid a credit crunch, raised $2 billion in May to bolster finances battered by low oil prices and the coronavirus crisis.

The International Monetary Fund has said it expects Bahrain's fiscal deficit to jump to 15.7% of gross domestic product this year from 10.6% in 2019.

"Bahrain's fiscal position remains fragile and wider GCC fiscal support is vital," Monica Malik, chief economist at Abu Dhabi Commercial Bank, said in a report this month, referring to the six-member Gulf Cooperation Council.

Bahrain, which saw government revenue drop 29% in the first half of 2020, had said it planned to tap debt markets twice this year.

Some bankers and analysts, however, said it may need more financial aid from fellow Gulf Arab states to overcome this year's downturn.

Ratings agency Fitch this month downgraded Bahrain further into "junk" territory, citing increases in the budget deficit and government debt, and a sharp gross domestic product contraction. urn:newsml:reuters.com:*:nL4N2FG2UW

(Reporting by Yousef Saba; Editing by Davide Barbuscia and David Evans) ((Yousef.Saba@thomsonreuters.com; +971562166204))