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Bahrain Country Risk Report Q1 2016

Bahrain Country Risk Report Q1 2016

Core Views

Weaker government spending will have an adverse impact on Bahrain’s economy, with growth set to slow to 2.9% in real terms in 2016. That said, a well diversified economic base, trade and financial linkages with the rest of the Gulf, and – over the longer term – the coming on stream of new industrial projects will help to support growth.

Bahrain’s reputation as a stable and welcoming location to do business in the Gulf has suffered as a result of the volatile political climate. At the moment, it remains to be seen if Manama will be able to compete with Doha and Dubai in attracting investment into the all-important hospitality and financial services industry.

The economy’s medium-term outlook remains contingent on a lasting solution being found to the current political crisis. Unfortunately, we maintain our guarded outlook on the prospects the government and opposition can come to some form of agreement in the near term.

Bahrain’s weak medium-term fiscal prospects will force the government to make difficult choices. We believe Manama will have little option but to introduce new taxes over coming years, while the issue of spending consolidation will loom large on the agenda. Support from Saudi Arabia could delay these pressures, but would entail a significant loss of sovereignty.


Executive Summary
Core Views
Key Risks
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Foreign Policy
Foreign Alliances To Hold Firm
The construction of a new British naval base in Bahrain underscores the Gulf state's ability to maintain its foreign alliances intact. The
continued support of the US and the UK, combined with political and financial assistance from Saudi Arabia, will help the Khalifa regime
to remain in power for the foreseeable future.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Sun, Sea, And Sectarianism: Prospects For Future Stability Assessed
Bahrain's political future is complicated by growing tensions between the Sunni elite and the Shi'a majority, labour and population
imbalances, the need to stay on side with Iran and Saudi Arabia, and economic vulnerability.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Reasons To Expect Resilience
Weaker government spending will have an adverse impact on Bahrain's economy, with growth set to slow to 2.9% in real terms in 2016.
TABLE: MAIN INFRASTRUCTURE AND INDUSTRIAL DEVELOPMENTS
GDP By Expenditure Outlook
TABLE: COMPONENTS OF GDP (% OF TOTAL)
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Fiscal Policy And Public Debt Outlook
Meat Subsidies Cut Signals Other Measures To Come
The first steps taken by Bahrain's government in response to lower oil prices - the abolition of meat subsidies and the formation of a
reduced cabinet - will have a limited impact on the budget account, but signal a much more conservative fiscal policy stance for the
coming years.
TABLE: FISCAL POLICY
Banking Sector Update
Banking Sector: Entering A More Challenging Period
Bahrain's commercial banks will record slower asset growth over the coming years as the continuing slump in energy prices weighs on
lending opportunities at home.
TABLE: BANKS' NET PROFIT (USDMN)
Regional: GCC Economic Policy
Fiscal And Monetary Tightening To Hit GCC Growth
The six economies of the GCC are set to face tighter fiscal and monetary conditions from 2016 onwards. A downward drag on economic
growth is inevitable.
TABLE: GCC - BUDGET BALANCE, % OF GDP
TABLE: GCC - REAL GDP GROWTH, %
Chapter 3: 10-Year Forecast
The Bahrain Economy To 2024
Political Crisis Raises Risks
Bahrain's economy will be able to post relatively moderate levels of real GDP growth over the coming decade. That said, the ongoing political crisis has raised a host of questions surrounding Bahrain's long-term outlook, while lower oil prices will intensify the country's fiscal vulnerabilities.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Education
TABLE: MIDDLE EAST AND NORTH AFRICA - EDUCATION RISK
TABLE: GRADUATES FROM UNIVERSITIES BY SUBJECT
Government Intervention
TABLE: MIDDLE EAST AND NORTH AFRICA - GOVERNMENT INTERVENTION RISK
Chapter 5:BMI Global Macro Outlook
Global Outlook
Exit The Dragon
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %

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