The public sector is playing a pivotal role in reviving economic prospects in Bahrain and for understandable reasons.

In fact, private sector establishments look up to the government to lead the investment drive ever since the outbreak of socio-political developments in February 2011. It is believed that strong governmental spending is essential in order to encourage other investors follow suit.

Not surprisingly, steady spending is leaving its imprints on economic growth rates. The Economic Development Board (EDB), which has the authority to develop economic policies and strategies, is projecting a strong growth rate of 5.6 per cent in 2013. However, the EDB puts GDP growth at a modest 3.4 per cent in 2012 mainly due to adverse developments in the petroleum sector.

On its part, Standard Chartered forecasts a growth rate of 4.5 per cent in 2013 and slightly higher in 2014, linking it to a revival in oil production. In fairness, Standard Chartered is uniquely qualified to comment on Bahrain’s economy by virtue of being the first bank ever to operate in the country in the last century.

Another positive note comes by way of S&P’s revised outlook for Bahrain from negative to stable. S&P partly linked the matter to implications of firm public sector on economic prospects at large.

However, the spending spree is raising concerns about a piling up of debt levels and budgetary deficit. The IMF estimates current outstanding debt at around $10 billion, representing 36 per cent of the GDP.

If build-up continues at current pace, public debt could jump to $15 billion in 2016 and more than $20 billion in 2018. To avoid such a catastrophic development, the IMF has rightly advised the authorities to carry out a workable economic reforms programme, which entails limiting public sector spending.

As to the public finance, the IMF fears that budgetary shortage could make up around 4.2 per cent of the GDP in 2013, reaching as high as 8.3 per cent in 2018. The warnings come against the backdrop of hike in budget deficit from a mere 0.3 per cent in 2011 to 2 per cent of the GDP in 2012.

Recently released official statistics put the deficit at $600 million in 2013. Still worryingly, in an unexpected development uncovered only recently, it emerged that Bahrain’s Treasury experienced disruption of oil revenues from the Abu Saafa field. It is suggested that the field had sustained a technical problem, but has fully recovered by the second quarter of this year.

Abu Saafa is exceptionally significant by virtue of contributing a robust 67 per cent of total budgetary income. In 2012, the Treasury earned some $8 billion, of which Abu Saafa accounted for $5.35 billion or two-thirds of the total. Still, oil income is supplemented by a smaller amount from a sole onshore field, located south of Manama, the capital.

Saudi Arabia and Bahrain share revenues of the field, which boasts total output of 300,000 barrels per day. However, Saudi Arabia administers the field and passes on Bahrain’s share net of operating costs.

To be sure, the petroleum sector including crude oil, refining and gas accounts for about three-quarters for of treasury and export revenues. Clearly, Bahrain’s economy remains oil-driven despite all the talks about economic diversification.

True, the country’s GDP is not significantly dependent on the petroleum sector due to a valid reason. The authorities consider oil refining as an industrial activity and hence part of manufacturing.

But above all, officials cannot overlook the overall macro-economic picture while addressing economic woes.