Exports ‘set to surge 25 per cent’

MANAMA: A surge in exports fuelled by rising oil prices will improve Bahrain’s external position in 2021, according to Fitch.

The US-based ratings agency has forecast export growth of 24.9 per cent in the kingdom this year on the back of rising oil prices, following the 22.4pc contraction recorded in 2020.

Tight compliance with Opec+ supply cuts, bullish market sentiment and a pickup in global demand as a result of the vaccine rollout have all helped to push oil prices up.

While production will continue to be constrained by maturing oil fields, the higher prices will still boost goods exports significantly, it says.

Oil exports represent around half of Bahrain’s total exports and since the start of the year, the Fitch oil and gas team has revised its 2021 average Brent price forecast up from $53 per barrel to $64/bbl (from an average of $41.9/bbl in 2020).

Aside from growth in oil exports, non-oil exports are expected to further improve the goods trade balance, marking a return to surplus in 2021.

The agency’s commodities team sees a moderate increase in global prices of aluminium, which constitutes 14pc of Bahrain’s total exports.

This, plus a recovery in economic activity in the country’s main export partners (including Saudi Arabia, the UAE and the US), is expected to contribute to a 12pc rebound in non-oil exports in 2021 following a 1.2pc contraction in 2020.

Fitch has also revised its 2021 current account deficit forecast for Bahrain from 6.1pc of GDP to 4.2pc now, after a shortfall of 9.3pc of GDP in 2020, as the export growth together with government fiscal constraints which are limiting import growth, will improve the country’s external account position.

It says broader fiscal consolidation, supported by the 2021 state budget, will curb demand for capital goods and services at least until H2-2021, when Covid-19 restrictions are likely to be lifted.

Goods imports will rebound by only 14.5pc against a 17.8pc contraction in 2020.

Moreover, Fitch has forecast a larger services trade surplus in 2021 compared to 2020, in the belief that the kingdom’s sophisticated financial services industry (half of service exports) will benefit from the rebound in growth across the GCC and, more broadly, the global economy.

However, fiscal consolidation in Saudi Arabia and the closure of the King Fahad Causeway until Q2-2021 will curb tourism revenues, as 78pc of annual visitors in Bahrain are Saudi residents, which the agency says informs its view that services exports are unlikely to return to pre-Covid-19 levels imminently.

Services imports, meanwhile, will grow at a slower rate as fiscal consolidation filters through to the Bahraini population.

Fitch expects GCC aid and regular portfolio inflows will ensure Bahrain is able to cover its external financing needs, lowering currency risks in the medium term.

It currently assesses medium-term risks to the kingdom’s external position as relatively limited, mitigating risks to the dinar’s dollar peg.

Around two-fifths of the $10 billion support package pledged to the country by Saudi Arabia, Kuwait and the UAE in 2018 will be disbursed between 2021 and 2023.

The assistance will not only help to buffer Bahrain’s external position directly, but also underpin investor confidence and ensure continued access to global capital markets, says Fitch.

The kingdom recently issued bonds to raise $2bn in January 2021, supporting portfolio inflows into the country.

Source: https://www.gdnonline.com/Details/943424/Exports-%E2%80%98set-to-surge-25-per-cent%E2%80%99