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Bahrain Country Risk Report Q1 2019

Bahrain Country Risk Report Q1 2019

We expect Bahrain's growth to slow from 2019 onwards, as fiscal consolidation reduces government investment flows and weighs on economic confidence This will be partially ameliorated by continued Gulf financial support and higher exports

Recent symbolic moves by King Hamad bin Isa al-Khalifa of Bahrain towards the country's Shia-majority population is likely to temporarily ease social discontent The dominance of pro-Saudi elites within the royal family reduces the likelihood of a more fundamental solution to the country's political woes, however This is aggravated by policy constraints imposed by the country's financial reliance on other Sunni Gulf governments

The Bahraini government is likely to deepen fiscal consolidation efforts in the 2019 budget within the context of an upcoming Gulf bailout programme We expect capital expenditure to suffer the most, given that it is less politically sensitive than most recurrent spending We do not expect fundamental improvements to the government's structural fiscal imbalances

Bahrain's current account deficit will narrow in the near term due to goods and services export gains From 2021 onwards, we expect a return to sizeable cur-rent account shortfalls as goods export growth slows This will weaken Bahrain's already-frail external position, although we expect Gulf financial aid to remain available, precluding a balance of payments crisis

Key Risks

Regional assistance will be vital to keep the external and fiscal accounts sustainable in the medium term If this assistance is not forthcoming, there will likely be a fiscal crisis and currency devaluation that will weigh on growth and lead to increased political instability

A more pronounced regional crisis stemming from an uptick in tensions between Iran and Saudi Arabia and/or the US could see risk premiums spike higher, particularly for Bahrain

Failure to find a lasting solution to the political crisis has seen elements of the opposition becoming increasingly radicalised, with use of militant tactics such as improvised explosive devices A continuation of this trend could result in Bahrain's relative 'safe haven' status suffering irreparable damage


Executive Summary
Core Views
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Fiscal Constraints To Slow Bahrain's Economic Growth In 2019
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
Bahrain Current Account Deficit To Narrow Only Temporarily
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES, 2017
Currency Forecast
GCC Pegs To Remain In Place In Next Decade
TABLE: GCC – SUMMARY OF CURRENCY REGIMES
TABLE: GCC – FINANCIAL BUFFERS
Bahrain Country Risk Q1 2019THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.Contents10-Year Forecast
The Bahraini Economy To 2027
Diversification And Political Stability Key To Long-Term Growth
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Bahraini King's Softer Stance Will Not Solve Political Woes
Long-Term Political Outlook
Social Tensions Pose Biggest Long-Term Threat
Operational Risk
TABLE: OPERATIONAL RISK
Economic Openness
TABLE: FREE TRADE AGREEMENTS
TABLE: TARIFF AND NON-TARIFF TRADE BARRIERS
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
TABLE: BARRIERS TO FDI
Utilities Network
TABLE: ELECTRICITY RISKS
TABLE: FUEL RISKS
TABLE: TELECOMMUNICATIONS RISKS
TABLE: WATER RISKS
Global Macro Outlook
Contagion Risks Limited To EMs For Now
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: BAHRAIN – MACROECONOMIC DATA & FORECASTS

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