The controversy surrounding the visit to Manama by the US assistant secretary of state for democracy, human rights and labour, Tom Malinowski, is no good news for Bahrain’s economy. In an abrupt move, Bahraini officials placed the visitor as persona no grata and reflecting, in turn, the political differences between Manama and Washington.

Among other adverse effects, the negative media coverage relating to the case could undermine business transactions and lead to potential losses for the Bahraini side. (The US and Bahrain are bound by a free-trade agreement dating back to August 2006.)

The World Investment Report 2014, issued by the World Conference on Trade and Development (Unctad), gives a mixed performance rating to Bahrain regard Foreign Direct Investment (FDI) inflow and outflow. On the one hand, Bahrain enticed FDI inflows of $989 million in 2013, a notable growth of 11 per cent from the previous year. On the other hand, outflows were higher by 14 per cent to above $1 billion.

American-owned enterprises are key investors in Bahrain. It is hoped that the political differences would not deter further US financing undertakings. Foreign investments are absolutely essential for the well-being of the Bahraini economy in regard to creating jobs and enhancing prospects.

Turning to other challenges, Bahrain’s budget suffered a deficit of $1.1 billion in fiscal year 2013, a substantial amount for a relatively small economy. This is around 3.7 per cent of the country’s gross domestic product, in turn projected at $30 billion.

However, the Bahrain Economic Development puts the deficit at 3.3 per cent of GDP. The agency, responsible for framing economic strategies, has an interest in projecting a comparatively stronger GDP figure.

Anyway, the shortage in both cases contradicts one element of the Gulf Monetary Union. The GMU stipulates that budgetary deficit should be restricted to 3 per cent of GDP. Only four of the six-nation GCC are members of GMU.

The other GCC countries experienced surpluses in their fiscal accounts. For instance, Saudi Arabia posted a notable surplus of $55 billion in fiscal year 2013, constituting more than 7 per cent of the GDP.

There is an issue with Bahrain’s sovereign rating when compared to the rest of GCC countries. Bahrain is the sole GCC state with ratings totally outside the A category, with ratings of Baa 2 and BBB from Moody’s and Standard & Poor’s respectively. Abu Dhabi, Qatar and Kuwait enjoy ratings of Aa2 from Moody’s and AA from S&P.

Moody’s continues to assign a negative outlook for Bahrain, certainly a disturbing detail. The rating has been brought on by a lack of progress on the political front ever since the socio-political crisis in February 2011.

S&P for its part suggests that Bahrain’s budget requires a considerably higher oil price than is prevailing now to achieve an equilibrium level. Specifically, oil prices must be higher by $18 per barrel than the going rate to avoid registering a budgetary shortfall.

The government prepared the budget for fiscal year 2014 using an average of $90 per barrel. It is believed that an equilibrium price requires having an average oil price of $120 per barrel, clearly above what is there in the market now.

Obviously, the well-being of the local economy stipulates finding lasting solutions to simmering political challenges. Not least to make sure that Bahrain stays competitive in the ever-rising regional competition for business.

The writer is a Member of Parliament in Bahrain.