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Thu 25 Jul 2019 10:11 AM

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Bahrain's economic outlook remains 'challenging', says report

A report from the Institute of Chartered Accountants in England and Wales (ICAEW) said that economic growth fell from 3.7% in 2017 to 1.8% in 2018

Bahrain's economic outlook remains 'challenging', says report
ICAEW said it expects a range of measures to be taken to reduce the fiscal deficit from an estimated 10.1 percent of GDP in 2018 to around 7 percent of GDP in 2019.

Bahrain’s economic outlook for the remainder of 2019 remains “challenging” due to weakness in government finances, limited prospects for oil sector growth and a general slowdown in the non-oil economy, according to a report from the Institute of Chartered Accountants in England and Wales (ICAEW) and Oxford Economics.

According to ICAEW’s report, economic growth in the kingdom more than halved last year from 3.7 percent in 2017 to 1.8 in 2018, with further deceleration seen in 2019 to 1.6 percent.

In an interview with Arabian Business, Mohamed Bardastani, ICAEW economic advisor and senior economist for Middle East at Oxford Economics, said that the slowdown is partly driven by a 1.1 percent contraction in the oil sector.

“The outlook will be challenging…oil production is not expected to pick up significantly,” he said. “[Bahrain] doesn’t have significant capacity to produce beyond 200,000 barrels per day.”

While Bahrain discovered its largest oil field since 1932 in April last year, Bardastani said that production is likely to remain slow and gradual and have a limited short-term effect on the wider economy.

“[There are] a lot of questions about well whether the costs associated are likely to be higher and how viable that is,” he said. “Even then, it will only be double the current production level.”

The report noted that growth in Bahrain’s non-oil economy – which comprises over 80 percent of total economic activity – fell from 4.9 percent in 2017 to 2.5 percent in 2018 and is expected to slow down further to 1.5 percent in 2019.

Bardastani added that it is too to fully understand that impact of the implementation of value-added tax earlier this year.

“It’s hard to gauge the effect,” he said. “The picture is not very clear yet. Other than that, we expect private consumption to remain uncharged when compared to previous years.”

Shortcomings

Additionally, the report said that the $10 billion support package extended to Bahrain by its GCC allies, of which $2.3 billion was received last year and $2.3 billion is expected this year, is expected to help address government shortcomings and support a number of infrastructure projects that will help balance Bahrain’s economy over the medium term.

“It [Bahrain] is struggling in terms of its own finances, but it’s getting a lot of support channelled through these projects,” Bardastani said. “Generally speaking, these feed into higher spending from the government side, higher public investment and stronger growth in the non-oil sector.”

ICAEW said it expects a range of measures to be taken to reduce the fiscal deficit from an estimated 10.1 percent of GDP in 2018 to around 7 percent of GDP in 2019.