MANAMA: Bahrain’s headline annual economic growth rate is expected to be 2.5 per cent for this year as a whole, down from the 3.7pc rate recorded during 2016 as a whole, mirroring regional trends.
Economic Development Board (EDB) chief economic adviser Dr Jarmo Kotilaine told the GDN yesterday that headline growth in the economy is likely to moderate somewhat in the coming years, although the infrastructure pipeline does present some upside risks.
Economic activity in Bahrain is likely to be shaped by a combination of continued strong infrastructure activity and public sector rationalisation, he said.
The 2017-2018 national budget, said Dr Kotilaine, points to further fiscal consolidation, which will weaken the traditional role of the public sector as a growth driver, much in line with developments in the rest of the region.
The budget projects revenues of BD4.5 billion over the two-year period on the assumption of a $55 per barrel oil price.
Revenues this year are expected to exceed BD2.2bn, of which BD1.7bn is due to come from oil and BD500 million from non-oil sources.
Revenues next year are projected at BD2.3bn with BD1.8bn coming from hydrocarbons and BD560m from non-oil sources.
Spending is projected at BD7bn, split equally between the two years.
Project spending is budgeted at BD700m and is to be split equally between the two years.
The consolidated final accounts showed a deficit of BD1.6bn for last year and the government is projecting a deficit of BD1.3bn this year followed by BD1.2bn next year.
He said BD3bn of additional borrowing is expected to be authorised to cover projected BD2.5bn deficits over the two-year period.
According to Institute of Chartered Accountants in England and Wales (ICAEW), the acceleration of global trade in the first half of the year is expected to be felt unevenly across GCC economies and will probably see the region’s GDP growth easing to just short of 1pc this year.
In a new report, the accountancy and finance body says governments across the region must increase their non-oil revenues in order to sustain longer oil production cuts with modest oil prices.
While the report Economic Insight: Middle East Q2 2017, produced by Oxford Economics, ICAEW’s partner and economic forecaster, anticipates non-oil sector growth across the GCC to reach 2.6pc in 2017, this will be offset by a further 3pc contraction in the oil-producing sectors.
Although the broad-based pick-up in the world economy is providing a useful tailwind to some GCC economies, others are likely to benefit far less from this rebound due to a range of structural reasons.
The three main limitations are: heavy reliance on commodity exports and low non-oil exports; the strengthening US dollar in a longer-term context which undermines the export competitiveness of dollar-pegged economies; and a lack of readiness (with the exception of the UAE) to operate as key east-west trading hubs.
The principal mechanism through which the region’s economies might expect to benefit from faster trade and overall growth would be through the more traditional channel of the impact on oil demand and prices.
According to the report, Opec’s decision to extend its current production cuts from July 2017 to March 2018 failed to have much impact on oil prices through May and June – partly because compliance outside the GCC is likely to be patchy, and because any rebound in oil prices will bring more output back onstream in the US.
The institute expects oil prices to remain close to $45 a barrel through most of 2017, creeping up through $55 by late 2019 as spare capacity in the world market is closed.
However, the 2018 outlook is likely to be more positive.
Oil output is expected to rise 1pc complementing momentum in the non-oil sector (which is expected to grow by 4pc) resulting in overall GDP growth of 2.7pc.
The report does warn, however, that any further oil price weakness or escalation of tensions between Qatar and other GCC economies, would clearly pose a downside risk to growth.
“GCC countries have to step up their efforts and increase non-oil revenues,” said ICAEW economic adviser and associate director of Oxford Economics Tom Rogers.
“The introduction of VAT next year is a start but it’s not enough, other measures should be taken to maintain financial steadiness. These measures should be considered as part of broader economic diversification strategies.”
The UAE is the most diversified economy in the GCC region – fuel generates just 22pc of export revenues, followed by Bahrain with fuel generating 34pc of export revenues.