Viewpoint: Najla M Al Shirawi
While low oil prices continue to limit the region’s – and in particular Bahrain’s – economic growth, non-oil growth appears to be generally resilient. Bahrain’s real GDP growth in the first half of 2016 reached 3.5% year-on-year (y-o-y), while the Bahrain Economic Development Board (EDB) forecast growth in 2016 would slow to 2.8%. Non-oil GDP growth in the first half of 2016 reached 3.1% y-o-y, driven mainly by the construction sector, which grew by 5.7%, benefitting from a large infrastructure pipeline; and the financial sector, which grew by 6.6%. Should Bahrain’s growth continue in the second half of the year, real GDP growth could potentially exceed the 2.8% predicted by the EDB.
Bahrain benefits from a $7.5bn GCC Development Fund established in 2011, with contributions made by three GCC member states. As of September 2016, $6.2bn of the $7.5bn had been allocated to projects, $3.8bn worth of contracts were awarded and $500m was actually paid. Key projects in the pipeline are the airport expansion, which has been allocated $1bn; electricity and water network expansions, which have received $1.3bn; and social housing projects, at $2.5bn. We are also witnessing positive momentum in terms of projects under way in the private sector. Bahrain Petroleum Company is currently executing a significant modernisation programme and constructing a new refining plant at an estimated cost of $6.2bn. This will ultimately enhance its downstream refining capacity with a new $350m pipeline being built to upgrade the current pipeline from the Abu Saafa oil field.
Upon completion, Aluminium Bahrain’s Line 6 project should benefit the manufacturing and industrial sector by doubling upstream production. According to MEED, the total infrastructure project pipeline stood at $72.5bn as of mid-September 2016.
Bahrain has been increasingly focused on prudent fiscal management and sustainability by reducing current expenditure, diversifying the government’s capital expenditure and focusing on sectors with high growth potential. Initiatives implemented in the kingdom so far – from oil and gas price increases to higher fees on services – are estimated by the government to have a financial impact of $267m per year. In addition, subsidy cuts are expected to result in $489m of revenues per annum in 2016, rising to annual savings of $1.7bn from 2021 onward. According to the Ministry of Finance, combined savings from fiscal reforms are forecast to account for 20% of Bahrain’s projected budget deficit, which is expected to reach $4bn in 2016, alleviating some of the fiscal pressure being placed on the government.
Bahrain has issued $4.65bn of gross new debt as of November 2016 and has repaid nearly $400m, surpassing the previous year’s record of $4.4bn. As of November 2016 total outstanding debt reached $23.5bn, and in 2017 the government will be faced with raising the debt ceiling from its current level of $26.6bn to accommodate further borrowing. According to IMF estimates, the debt-to-GDP ratio is expected to reach 75.5% in 2017 and 85.2% in 2018.
GDP growth is primarily driven by non-oil sectors, which contribute about 80% of the country’s GDP – the highest in the GCC. The EDB is targeting growth in five primary sectors for investment promotion in line with Economic Vision 2030: financial services, manufacturing, logistics, ICT and tourism. Investments in industrial parks and logistics zones are expected to boost growth in these sectors. Finance continues to play a fundamental role in driving economic growth, contributing 17% to the kingdom’s GDP, and the EDB is focusing on deepening ancillary financial services and building on financial technology, including payment services. Additionally, the expected introduction of value-added tax in 2018 – in sync with other GCC states – and the emphasis on boosting tourism, health care and telecoms, along with additional reforms to be implemented, are expected to generate non-oil revenues, moving the country in the right direction.
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