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Bahrain Country Risk Report 20 2018

Bahrain Country Risk Report 20 2018

Higher oil prices will provide a tailwind to the Bahraini economy over the coming two years, as resultant increases in government revenues facilitate a delay in fiscal consolidation. Over the medium term, however, some austerity measures will be necessary and as such we forecast growth to slow from 2020.

Bahrain's social climate will remain fraught in the coming quarters, with the unpopular house arrest of an ailing Shi'a cleric and planned parliamentary elections likely to exacerbate sectarian tensions.

Although we see little imminent risk to the government's ability to retain power given continued Saudi backing, the social unrest will undermine fiscal consolidation efforts.

Rising oil prices will ease the pressure on Bahraini government finances in the short term, reducing the risks of a credit default in the short term. With that said, the temporary improvement in revenues will reduce the pressure on the government to make unpopular decisions and, with oil production set to head steadily lower, fiscal pressures are likely to re-emerge in the medium term. Higher oil prices will accelerate the narrowing of Bahrain's current account deficit in 2018 and 2019 but the shortfall will begin to grow again from 2020. Inflows to the financial account from regional peers will be sufficient to cover the current account shortfall; however, in the event that these are not forthcoming, we believe that the risks to the currency peg would become severe.

The Central Bank of Bahrain will outraise the Federal Reserve in 2018 owing to price and currency pressures. However, we have revised downwards the magnitude of additional central bank hikes relative to the Federal Reserve due to lower-than-expected inflation and higher oil prices.


Executive Summary
Core Views
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Rising Oil Prices Will Provide Tailwinds To Growth
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
Regional Assistance Will Bridge Current Account Shortfall
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
VAT Delay Will Reduce Inflationary Pressures
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Higher Oil Prices Will Provide Temporary Respite To Fiscal Accounts
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES, 2015
Chapter 2: 10-Year Forecast
The Bahrain Economy To 2027
Diversification And Political Stability Key To Long-Term Growth
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Unrest Will Limit Scope For Fiscal Consolidation
Long-Term Political Outlook
Social Tensions Pose Biggest Long-Term Threat
Chapter 4: Operational Risk
Operational Risk
TABLE: OPERATIONAL RISK
Business Crime
TABLE: BUSINESS RESPONSE TO WHITE COLLAR CRIME AND ORGANISED CRIME
Education
Chapter 5: BMI Global Macro Outlook
Trade Tensions Take Centre Stage
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: BAHRAIN – MACROECONOMIC DATA & FORECASTS

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