Bahrain’s economic growth ‘to rebound’

Bahrain’s economic growth is set to rebound as oil prices recover and activity in the region increases, shows new analysis from S&P Global Ratings.

The US research firm expects the kingdom’s real GDP to expand by 2.7 per cent this year, swinging into positive territory after a 5.8pc contraction last year.

Real GDP is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year, as against nominal GDP with does not factor changes in prices of goods and services.

The Bahrain government’s vaccination campaign has been swift and widespread, providing jabs free of charge, with over 60pc of the eligible population inoculated and the King Fahad Causeway to Saudi Arabia re-opened this month, providing additional impetus to growth, says the S&P report.

Projects funded by the $7.5 billion GCC Development Fund – which is different from the $10bn GCC support package – will continue to boost investment over the forecast period, it adds.

However, the effects will wane as almost the full development fund has been committed to projects, of which about $5bn are underway or completed.

For the three year period till 2024, S&P expects Bahrain’s GDP growth to average about 2.3pc.

The kingdom’s relatively diverse economy benefits from its proximity to the large Saudi Arabian market, strong regulatory oversight of the financial sector, a relatively well-educated work force, and low-cost environment, it says.

Bahrain’s GDP contracted by an estimated 5.8pc in real terms in 2020 as the pandemic and lower oil prices reduced consumption and investment activities.

In particular, it was hit by contractions in larger GCC economies, given the close linkages between the countries through the tourism, transportation, and real estate sectors, the report explains.

The non-oil economy contracted by 7pc in real terms.

A deeper contraction was likely mitigated by government stimulus measures, with the full package amounting to BD4.5bn (about 32pc of GDP), mostly including a BD3.7bn increase in loan facilities from the CBB and about BD290m (2pc of GDP) in budgeted stimulus measures.

Last week, S&P Global Ratings revised its outlook on Bahrain to negative from stable.

At the same time, the agency affirmed the ‘B+/B’ long- and short-term foreign and local currency sovereign credit ratings.

The transfer and convertibility assessment on Bahrain remains ‘BB-’.

Relatively high oil prices should support the country’s fiscal position this year, it says with net debt to GDP ratio to average 120pc and interest to revenue to average 28pc over 2021-2024.

S&P has forecast a fiscal deficit of about 6pc of GDP in 2021, down from 13pc in 2020, largely due to the increase in oil prices in 2021 relative to 2020.

The deficit is expected to average about 5pc over 2021-2024, a large improvement compared with the 10pc average deficit over 2015-2020, and for the government to reach a primary surplus by 2022.

The forecasts assume that the government makes some progress in implementing non-oil revenue-raising measures and reducing recurrent expenditure.

Budgetary reform efforts in Bahrain continued over 2020, albeit more slowly given the necessary government focus on the health and well-being of the island’s residents in relation to the Covid-19 pandemic.

Excluding the impact of Covid-19-related spending, government expenditure fell and non-oil revenue increased, says S&P.

Bahrain’s current account deficit is forecast to narrow to 4.8pc of GDP in 2021, following the 9.4pc of GDP deficit in 2020, which followed lower oil prices and weaker receipts from tourism and financial services.

The current account deficits are set to continue to be funded primarily through government debt issuance.

Despite running current account deficits since 2015, the economy remains in a net external asset position.

S&P estimates liquid external assets will exceed gross external debt by, on average, 30pc of current account payments over 2021-2024.




Share this page Share on FacebookShare on TwitterShare on Linkedin

Discover the 'Made in France à Bahrain' Guide

'Made in France à Bahrain' - Edition 2021
is YOUR guide to the economic presence in Bahrain. Click here to view the online guide