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Bahrain Country Risk Report Q3 2016

  • May 2016
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views External financing from the rest of the GCC will help to shield the Bahraini non-oil sector from the ongoing retrenchment in public spending. Despite the negative impact of subsidy cuts on internal demand, we forecast Bahrain's to grow at a relatively robust rate of 2.9% this year and 2.7% in 2017. Bahrain's reputation as a stable and welcoming location to do business in the Gulf has suffered as a result of the volatile political climate. At the moment, it remains to be seen if Manama will be able to compete with Doha and Dubai in attracting investment into the all-important hospitality and financial services industry. The economy's medium-term outlook remains contingent upon a lasting solution being found to the current political crisis.

Unfortunately, we maintain our guarded outlook on the prospects that the government and opposition can come to some form of agreement in the near term. Bahrain's weak medium-term fiscal prospects will force the government to make difficult choices. We believe that Manama will have little option but to introduce new taxes over the coming years, while the issue of spending consolidation will loom large on the agenda. Support from Saudi Arabia could delay these pressures, but would entail a significant loss of sovereignty. The Central Bank of Bahrain (CBB) will continue to follow a procyclical monetary policy over 2016, raising interest rates in line with the US Federal Reserve's moves. Although the government's subsidy cuts will trigger inflation, continued strength in the US dollar, subdued commodity prices, and the CBB's rate hikes will help to offset inflationary pressures.

Table Of Contents

Bahrain Country Risk Report Q3 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Non-Oil Sector Resilient Thanks To Gulf Links8
The robust performance of the non-oil sector will mitigate the negative impact of low energy prices on the Bahraini economy Strong
links with and continuous financial support from the rest of the GCC will boost the construction and tourism industries, despite weaker
business sentiment stemming from cuts in public spending
TABLE: MAIN INFRASTRUCTURE AND INDUSTRIAL DEVELOPMENTS8
GDP By Expenditure Outlook 9
TABLE: COMPONENTS OF GDP (% OF TOTAL)10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: PRIVATE CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS11
TABLE: NET EXPORTS FORECASTS11
Fiscal Policy And Public Debt Outlook 11
Spending Cuts Underway Amid Necessary Multi-Year Adjustment11
The Bahraini government will seek to consolidate its fiscal position amid heavy reliance on oil revenues, which are not due for a sharp
recovery More subsidy cuts and the introduction of new taxes signal the government's effort to cut current spending and increase nonoil
revenue, but will not prevent a rapid accumulation of debt
Structural Fiscal Position 13
Monetary Policy 13
Rate Hikes To Keep Inflation Under Control13
Inflationary pressures will intensify following ongoing cuts to subsidies for food, diesel and utilities, although they will be mitigated by
interest rates hikes in the second half of 2016, as the Central Bank will be forced to keep up with hikes from the US Federal Reserve
Inflationary pressures, combined with higher costs of borrowing, pose risks to political and social stability
Monetary Policy Framework 14
Chapter 2: 10-Year Forecast 17
The Bahrain Economy To 2025 17
Diversification And Political Stability Key To Long-Term Growth17
Bahrain's economy will post moderate levels of growth over the coming decade as the economy continues to diversify away from oil,
assuming that political stability is maintained We project real GDP growth to average 33% annually over the next 10 years Low oil
prices will intensify pressures on the fiscal accounts and lead to rapid debt accumulation, but a default remains unlikely
TABLE: LONG-TERM MACROECONOMIC FORECASTS17
Chapter 3: Political Outlook 21
SWOT Analysis 21
BMI Political Risk Index 21
Domestic Politics 22
Job Creation And Affordable Housing Key To Stability22
Ongoing fiscal consolidation will further undermine support for the government, in a context of existing socio-economic tensions
between the Sunni rulers and the Shi'a majority The availability of affordable housing and the creation of high-quality jobs for Bahrainis
will be essential to maintain stability
TABLE: POLITICAL OVERVIEW22
Long-Term Political Outlook 24
Sun, Sea, And Sectarianism: Prospects For Future Stability Assessed24
Bahrain's political future is complicated by growing tensions between the Sunni elite and the Shi'a majority, labour and population
imbalances, the rising dependence on Saudi Arabia, and economic vulnerability We believe the most likely long-term scenario
is for democratisation to be brought about by political and economic necessity, although there is no guarantee that this would be
peaceful
Chapter 4: Operational Risk 27
SWOT Analysis 27
Operational Risk Index 27
Operational Risk 28
TABLE: OPERATIONAL RISK28
Economic Openness 29
TABLE: FREE TRADE AGREEMENTS 30
TABLE: TOP 5 IMPORT PARTNERS, 2010-2014, (USDMN) 31
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES 32
Availability Of Labour 34
TABLE: MIDDLE EAST AND NORTH AFRICA - AVAILABILITY OF LABOUR RISK 35
TABLE: BREAKDOWN OF EMPLOYMENT BY SECTOR 36
TABLE: TOP 10 SOURCE MIGRANT SOURCE COUNTRIES, '000 37
Chapter 5: BMI Global Macro Outlook 39
Global Macro Outlook 39
Tentative Stability, But New Risks Emerging39
TABLE: GLOBAL ASSUMPTIONS 39
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 40
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 41
TABLE: MACROECONOMIC DATA and FORECASTS 43

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