Fresh data point to a welcome return to form for Bahrain’s economy, thanks in part to inward investments and financial support from other Gulf states. However, austerity measures designed to limit budgetary shortfalls would place a cap on growth levels.

A report by Oxford Economics gives a fairly astonishing account of growth rates for gross domestic product (GDP), saying that real GDP, adjusted for inflation, grew by 3.7 per cent in 2016, up from 2.9 per cent 2015. This is one of the best results within the GCC. However, GDP growth rates are expected to fall in 2017 on the back of restrained governmental spending.

To be sure, reducing public sector expenditures is understandable in the current circumstances. I learnt of some disturbing facts concerning Bahrain’s economy during my trip to Washington last week.

The budgetary shortage amounted to 18 per cent of GDP in 2016. This translates into a resounding $6 billion. This level of deficit is not sustainable, requiring steps like expenditure cuts where possible, including limiting employment in public sector entities. Certainly, it is no business doing away with job opportunities in the public sector, an area popular with locals.

The other challenge concerns the staggering debt, standing at 80 per cent of GDP. The figure could only increase in light of a substantial budgetary deficit unless something is done. In retrospect, the debt level was 10 per cent of GDP in 2008.

Over the past two years, the authorities ended subsidies extended to meat and reduced fuel subsidies. For instance, the price for premium petrol products was increased by 60 per cent overnight.

Nevertheless, inflation is not yet a challenge despite the moves on subsidies and allowing for a rise in prices of strategic products. Three GCC countries are pouring money into capital projects in Bahrain, notably housing schemes. In addition, the UAE has committed significant resources to the expansion of Bahrain International Airport.

The project should set the stage for development of other sectors like tourism and events management. Dubai International Airport represents an exemplar of benefits derived from developing such vital infrastructure.

Kuwait is offering critical support for financing expansion of road projects throughout the country. The financial aid is part of a move by four GCC countries to help both Bahrain and Oman overcome socioeconomic challenges by allocating funds for infrastructure projects.

The choice of raising funds in international markets is possible but costly. Worryingly, credit rating agencies rank Bahrain’s debt below investment levels. Moody’s and Fitch have a negative outlook for Bahrain’s economy, while Standard & Poor’s maintains a stable outlook.

Turning to a positive spillover of airport expansion, work is underway to enhance prospects of the tourism sector. Turkey and Bahrain have agreed to drop visa charges for nationals of the two countries visiting the other nation. The timing is special for Turkey ahead of the start of the summer season.

Tourists from GCC countries help in compensating Turkey for a reported drop in the number of tourists from some Western countries. Needless to say, more needs to be done to cut spending and generate revenues. Restraining expenditures would require painful steps like limiting employment opportunities in the public sector.

Still, prospects for enhancing treasury revenues should improve with the introduction of VAT in 2018.

The writer is a Member of Parliament in Bahrain.