The sudden positive change in the political atmosphere in Bahrain ought to further improve economic prospects for the smallest country within the six-nation Gulf Cooperation Council (GCC). Reference is made to the extraordinary meeting held in mid-January between Crown Prince Salam Bin Hamad Al Khalifa and leaders from the mainstream opposition bloc, Al Wefaq.

The meeting raised hopes for a serious dialogue in the weeks and months to come with the aim of addressing on-going socio-economic and socio-political challenges facing the country. Happily, the two sides agreed to strengthen efforts for finding solution to outstanding challenges, thereby paving the way for a national reconciliation ever since emergence of the political of mid-February 2011.

To be sure, Bahrain’s economy has performed exceptionally well in 2013 and a political deal would boast the performance. It is widely assumed that real gross domestic product (GDP) hovered around 5 per cent in 2013, certainly a sound achievement.

Part of the credit for this welcoming performance reflects positive spillover effects of GCC funded projects. In late 2011, four GCC countries agreed to grant each of Bahrain and Oman a sizable $10 billion (Dh36.7 billion) to help streamline economic condition in the two member states in the light of unrest for political and economic reasons.

Amongst others, opposition forces in Bahrain are calling for participation in decision-making and a law criminalising all kinds of discriminatory practices.

Projects

Anyway, more funded projects are expected to come on stream in 2014 mainly in the infrastructure arena such as development of road networks and housing projects. Undoubtedly, Bahrain is grateful to Kuwait and the UAE for taking the lead in singing a separate agreement offering $2.5 billion as part of a $10 billion GCC economic aid.

Recently, Fitch Ratings affirmed long-term foreign currency and local currency at BBB and BBB+, respectively together with positive outlooks. The notable ratings were partly based on solid economic fundamentals including that of sustaining current account surplus equivalent to 10 per cent of the GDP.

Also, the rating is partly attributed to resumption of oil production from the off-shore Abu Saafa. Saudi Arabia and Bahrain share the field’s output of 300,000 per day. The field is exceptional significant by virtue of making up 70 per cent of total oil revenues; altogether, the petroleum sector represents a hefty 85 per cent of treasury income. In effect, normal oil production is projected for 2014, undoubtedly a welcoming development.

Other attractive economic matters entail absence of inflationary pressures. At 3.3 per cent in 2013, the inflation rate is definitely under control.

Debt level

However, issues of concern entail steady rise of public debt, with untold consequences to pubic the economy at large. Outstanding debt amounted to $7.7 billion in 2010, yet $9.5 billion in 2011, still $11 billion in 2012 and worse $13.3 in 2013. Accordingly, the debt level represents around 43 per cent of the GDP. Yet, the IMF has warned that the debt amount could alarmingly reach $20 billion in 2018 or 61 of the GDP.

Suffice to say that the budget for fiscal year 2014 was prepared with a record shortage of $2.4 billion, a shortage requiring financing in the absence of other viable options. The authorities prepared the budget for 2014 by assuming $90 per barrel, therefore almost close to market rates. According to the IMF, only an average oil price of $122 per barrel could guarantee zero deficits, something not attainable in current market conditions.

Moody’s unlike Fitch continues to hold negative outlook for Bahrain’s economy due to economic woes such as the debt and absence of a lasting political resolution.

 

The writer is a member of parliament in Bahrain