Economic growth will slow in Bahrain throughout 2017 and the government will continue to post large deficits as social instability limits opportunities for effective spending cuts, according to new research.
In two separate reports this week, BMI Research warns that domestic instability in Bahrain will cause revenues to remain low by historical standards, even as oil prices start to recover.
BMI forecasts Bahrain’s budget deficit to come in at 9.6 percent of GDP in 2017 – down from 13.7 percent in 2016 – and to lag in the mid-to-high single digits through to 2021, it said.
And, even as Brent prices recover in 2017 to an expected average of $55 per barrel, this will still be well below Bahrain’s fiscal breakeven price of $95.1 per barrel in 2016. The kingdom has been hard hit by the slump in oil prices, as hydrocarbons account for around 90 percent of government revenues.
The country will be forced to continue to rationalise public spending over the coming years, beyond reforming its subsidy regime in 2015 and 2016, and it will continue to post large fiscal deficits.
BMI’s research papers also note that Bahrain, the smallest of the GCC states, is heavily dependent on its neighbour Saudi Arabia both politically and economically.
The economic challenges facing Saudi Arabia are therefore likely to impact negatively on Bahrain.
The report said: “Following our downgrade of Saudi growth [in December] –we now expect the economy to enter recession in 2017 – we believe that worsening conditions in Saudi Arabia will weigh on economic activity in Bahrain.”