Non-oil sector ‘to drive Bahrain’s growth’
Bahrain’s non-oil sector is expected to prop up economic growth amidst global headwinds, according to an assessment by a leading chartered accountants institute.
The latest Economic Insight report for the Middle East, commissioned by ICAEW and compiled by Oxford Economics, also reveals that inflation data in the region indicates easing price pressures with inflation being the lowest in Bahrain and Oman (0.7 per cent and 1.2pc, respectively).
However, the report notes that the kingdom’s non-oil recovery is slowing after a decade-high pace in 2022.
The report suggested that, without significant reforms to the economy, the national GDP growth would continue to slow to an average of only 1pc a year during 2025-30.
According to the Q2 report, Bahrain’s GDP growth will decelerate to 2.2pc this year, likely caused by a slowdown in global activity, lower oil prices and the easing in tax receipts.
This follows the fast-paced growth in 2022, with the kingdom’s economy expanding by 4.9pc, the fastest in nine years.
It says economic expansion last year was primarily driven by the doubling of the VAT rate, rising to 10pc.
Excluding the tax effect, the economy expanded by 3.3pc, driven by Bahrain’s non-oil sector, including government services, the finance sector and manufacturing.
The country’s oil sector did not perform as strongly, shrinking 1.4pc year-on-year, despite a 7.8pc year-on-year increase in production and a sharp rise in global oil prices.
Inflation in Bahrain rose by 3.6pc in 2022 as higher oil prices affected domestic commodity import prices. However, it has since slowed to below 1pc due to the high base effect of the VAT doubling last January and the delayed impact of rate hikes.
The report predicts inflation to average 0.7pc this year and near 2pc in 2024.
ICAEW head of Middle East Hanadi Khalife said: “As with all regional oil producers, Bahrain’s oil sector is limited due to production capacity constraints. Additionally, the impact of global uncertainty, high inflation and tightening monetary policy has limited consumer spending.
“We expect the non-oil sector to be the biggest growth driver over the medium term. While the VAT reforms last year widened the tax base, more policies are required to prevent revenue to stagnation.”
ICAEW Economic Advisor Scott Livermore, who is also chief economist and managing director at Oxford Economics Middle East, said: “Bahrain’s focus on non-oil investments for future growth is evident, with a particular emphasis on upcoming infrastructure projects such as the development of a new airport. That said, Saudi Arabia’s drive to overhaul its economy through Vision 2030 and develop local tourism and entertainment industries may hit Bahrain, which historically has benefited from its proximity to Saudi Arabia and large inflows of Saudi tourists.”
The report indicates Bahrain’s fiscal position is likely to transition into a deficit in 2024. This underscores the pressing need for further fiscal adjustments, despite the windfall from higher oil prices and government efforts in recent years.
Source: https://www.gdnonline.com/Details/1254540
