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Bahrain Country Risk Report Q4 2016

  • July 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 to grow at a relatively robust rate of 2.7% this year and 2.9% 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 industries. 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 pro-cyclical 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 and subduedcommodities prices will help to offset inflationary pressures.

Table Of Contents

Bahrain Country Risk Report Q4 2016
Executive Summary. 5
Core Views5
Key Risks..5
Chapter 1: Economic Outlook 7
SWOT Analysis.. 7
BMI Economic Risk Index 7
Economic Growth Outlook. 8
Robust Construction Sector Will Limit Economic Slowdown..8
Economic growth in Bahrain will be modest in 2016 and 2017, as weak oil prices continue to affect government revenues and investor
confidence. In addition, the ongoing crackdown on the opposition raises the risks of a violent uprising, which would weigh on growth and
investor sentiment.
TABLE: MAIN INFRASTRUCTURE AND INDUSTRIAL PROJECTS8
GDP By Expenditure Outlook. 10
TABLE: GDP GROWTH FORECASTS..10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: PRIVATE CONSUMPTION FORECASTS..10
TABLE: FIXED INVESTMENT FORECASTS.11
TABLE: NET EXPORTS FORECASTS..11
External Trade And Investment Outlook. 12
GCC Investment To Finance C/A Deficit.12
Bahrain will post a widening current account deficit in 2016 as oil prices bottom, before gradually returning to surplus by 2020 as the
government steps up efforts to diversify the economy and increase manufactured goods and services exports.
Outlook On External Position. 13
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE..13
TABLE: CURRENT ACCOUNT BALANCE FORECASTS13
TABLE: BREAKDOWN OF IMPORTS ..14
TABLE: BREAKDOWN OF EXPORTS .14
Monetary Policy.. 15
Rate Hikes Will Add To Liquidity Squeeze.15
The CBB will continue to follow a tightening monetary policy over 2016 and 2017, hiking interest rates in line with the US Federal
Reserve's moves in order to maintain its peg with the dollar.
Monetary Policy Framework 16
TABLE: MONETARY POLICY FORECASTS.16
Chapter 2: 10-Year Forecast. 19
Diversification And Political Stability Key To Long-Term Growth..19
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.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.19
Chapter 3: Political Outlook. 23
SWOT Analysis 23
BMI Political Risk Index. 23
Opposition Clampdown Raises Long-Term Instability Risk..24
The renewed crackdown on the Shi'a opposition in Bahrain will silence dissenting voices in the short term, but does not address
demand for greater political representation and socio-economic inequalities, therefore raising risks of large-scale unrest at a later stage.
The clampdown will also exacerbate tensions with Iran and undermine US support.
TABLE: POLITICAL OVERVIEW..24
TABLE: OPPOSITION CRACKDOWN25
Long-Term Political Outlook.. 26
Sun, Sea And Sectarianism: Prospects For Future Stability Assessed.26
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. 29
SWOT Analysis 29
Operational Risk Index.. 29
Operational Risk. 30
TABLE: OPERATIONAL RISK30
Market Size And Utilities .. 31
TABLE: MIDDLE EAST AND NORTH AFRICA - MARKET SIZE AND UTILITIES RISK 31
Labour Costs .. 34
TABLE: REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE..34
Chapter 5:BMI Global Macro Outlook. 39
Global Macro Outlook. 39
Brexit Risk Casts A Long Shadow..39
TABLE: GLOBAL ASSUMPTIONS..39
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %40
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %..41
MACROECONOMIC FORECAST.43
TABLE: MACROECONOMIC DATA and FORECASTS.43

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