Population 1.151 million
GDP 26.509 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
4.3 |
1.9 |
3.5 |
3.2 |
|
Inflation (yearly average) (%)
|
2 |
-0.4 |
3 |
2.5 |
|
Budget balance (% GDP)
|
-5 |
-3.5 |
-2.5 |
-5 |
|
Current account balance (% GDP)
|
3 |
12.5 |
10.5 |
6.5 |
|
Public debt (% GDP)
|
42 |
43 |
45 |
47.5 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Relatively diversified (oil, gas, aluminium, petrochemicals, financial services, tourism) and open economy
- Main regional financial centre
- Presence of the main US naval base in the region (US Navy’s 5th Fleet)
WEAKNESSES
- Shrinking hydrocarbon reserves and exposure to fluctuating hydrocarbon prices
- Serious socio-political tensions between the Sunni minority in power and the Shiite population
- Uncertain regional geopolitical situation
- Dependence on foreign workforce
Risk assessment
Slight erosion of growth in 2013
The hydrocarbon sector will continue to make a pivotal contribution to growth in 2013. Oil production is not expected to change much but gas production will increase slightly with efforts still focused on higher value-added activities like refining or aluminium production. The economy will also benefit from a robust domestic demand. In context of socio-political unrest, higher public spending and the continuation of subsidies will underpin private consumption. Moreover, the tourist industry is gradually taking off again, in connection with major trade shows and events such as the F1 Grand Prix.
However, the recurrent trouble since 2011 and the risk of further confrontations are damaging Bahrain’s’ reputation for financial stability and institutions are transferring their activities to Doha or Dubai, considered as less exposed locations. Bahrain’s offshore financial sector, whose role has hitherto been pre-eminent at regional level, constitutes the economy’s main supply side component.
Worsening of the budget deficit and erosion of the current account surplus
Fiscal revenues are expected to grow little while public spending will continue to rise because of a policy of investment in infrastructure and housing, maintenance of subsidies benefiting the most needy (water, electricity, petrol, food-stuffs), as well as specific measures taken to avoid greater unrest. This combination will lead to a distinct worsening of the budget deficit, which is becoming harder to finance through the international markets due to the country’s high level of sovereign spreads. The result is a steady rise in public debt. Moreover, as the assets of the sovereign fund are fairly illiquid and the total asset value relatively limited (less than $ 10 billion), since 2011 the kingdom has called upon the Gulf Cooperation Council for financial support amounting to $ 10 billion.
Given the low hydrocarbon reserves, sales of refined hydrocarbon and aluminium products remain the main sources of export revenues and will make it possible to maintain a substantial trade surplus. Against this, the services balance is expected to worsen as regional firms make less use of the Bahraini financial sector. Conversely, profit repatriation by foreign firms and of expatriates’ remittances will surpass the dividends derived from assets abroad and will deepen the revenue deficit. In sum, the current account surplus is expected to continue to decrease.
Persistent socio-political unrest
Against a background of uprisings in several Arab countries, social and political unrest is persisting in Bahrain, although it is severely repressed. The unrest was particularly intense in early 2011 and led at the time to Saudi military intervention at the request of the Sunni King Hamad ben Issa Al-Khalifa.
The Shiites, representing about 70% of the population, feel economically and politically marginalised by the Sunnis and are demanding, in particular, stronger parliamentary powers. In the October 2010 parliamentary elections, Al-Wifaq, the main Shiite group, came out on top but its members have since withdrawn in protest against repression of the demonstrations. They were replaced by independents after by-elections in October 2011. A boycott by Al-Wifaq of the next elections planned for 2014 seems likely, increasing the risk of a Shiite insurrection against the ruling family. To these sharp tensions are added geo-political uncertainties chiefly linked to the proximity of Iran.
This situation impacts negatively on a business environment, hitherto fairly favourable thanks to the efforts made to improve local skills, stimulate the private sector and attract more foreign investment.
