Bahrain’s economy likely to contract by 3.6pc this year

MANAMA: Bahrain’s economy is likely to contract by 3.6 per cent this year, however government stimulus measures should provide support, Central Bank of Bahrain (CBB) Governor Rasheed Al Maraj has said.

Speaking during a webinar organised by the International Monetary Fund (IMF) and Al Iktissad Wal-Aamal Group yesterday, Mr Al Maraj said he was largely in agreement with the IMF’s assessment of -3.6pc GDP growth for the kingdom this year.

The webinar titled, ‘Policy Priorities to Promote a Robust Post-Covid19 Recovery in the GCC Countries’, also included IMF director of the Middle East and Central Asia Department Dr Jihad Azour, Saudi Arabian Monetary Agency Governor Dr Ahmed AlKholifey and Majid Al Futtaim Holding chief executive Alain Bejjani as panellists.

It saw discussion on the impact of the Covid-19 pandemic and of lower oil prices on the Gulf economies and needed policies to accelerate the recovery following the gradual lifting of movement and travel restrictions.

The webinar came soon after the IMF forecast real GDP for the GCC shrinking by 2.69pc in 2020 and by 3.27pc for the Mena as a whole.

The CBB Governor yesterday said the Bahrain government has implemented a number of stimulus measures to alleviate the fallout on the economy from the Covid-19 pandemic and lower oil prices, which should help growth to rebound in 2021 as oil prices recover and activity in the region increases.

There is a large pipeline of ongoing investment projects that were not interrupted by the lockdown, he said.

Meanwhile, US-based ratings agency S&P Global has forecast a 5pc contraction in Bahrain’s real GDP this year due to the Covid-19 pandemic and lower oil prices leading to reduced consumption and investment activities.

Bahrain’s small economy will also be affected by slowdowns in larger GCC economies, given the close linkages, for instance through the tourism, transportation and real estate sectors, it said.

While the agency does not expect a decline in the oil and gas sector, since Bahrain is a small producer and not subject to Opec cuts, other large sectors such as financial services and manufacturing will likely slow.

Bahrain’s relatively diverse economy benefits from its proximity to the large market of Saudi Arabia, strong regulatory oversight of the financial sector, relatively well-educated work force and low-cost environment, said S&P.

The S&P assessment came before the Bahrain government’s decision of June 29, giving a three-month extended reprieve to businesses hardest hit by the coronavirus downturn, and was based on the support package of BD4.3 billion (about 32pc of GDP) announced in March.

The bulk of the package comprises a BD3.7bn increase in loan facilities from the Central Bank of Bahrain for debt deferment and additional lending in the economy.

S&P said the budgeted stimulus measures amounted to about 2.4pc of GDP, mostly from the payment of utility bills for individuals and businesses for the three months from April to June 2020.

The agency expects Bahrain’s economy to rebound in 2021 with real GDP expanding by 3.5pc.

During yesterday’s webinar, Dr Azour said as the lockdown begins to ease in several parts of the world, fiscal policies will have to adapt to country circumstances, balancing the need to protect people, stabilise demand and facilitate recovery.

“All measures should be embedded in a medium-term fiscal framework and transparently managed and recorded to mitigate fiscal risks, including loans and guarantees that do not have an immediate effect on government debt and deficits,” he said.




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