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Bahrain Country Risk Report Q2 2015

Executive Summary
Core Views
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
End To Political Crisis Still Far Away
Developments over the start of 2015 support our view that Bahrain's political crisis will continue, with the persistent divide between the
Sunni-dominated Khalifa regime and the Shi'a opposition undermining the country's stability and the government's ability to undertake
economic reform.
Table: POLITICAL OVERVIEW
Table: COMPOSITION OF NATIONAL ASSEMBLY
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. We believe the most likely long-term
scenario is for democratisation to be brought about by political and economic necessity, although there is no guarantee this would be
peaceful.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
GCC Links To Mitigate Effects Of Oil's Slide
Development funds from the GCC and visitor flows from Saudi Arabia will support Bahraini economic activity over 2015. Nevertheless,
the slide in oil prices will weigh down on consumer and business confidence, and prompt a moderation in the government's spending
plans. We forecast real economic growth to slow to 3.4% this year, from 5.3% in 2013.
Table: Economic Activity
Table: BMI CRUDE OIL PRICE FORECAST
Table: REAL GDP GROWTH, % CHG Y-O-Y
Table: MAIN INFRASTRUCTURE AND INDUSTRIAL DEVELOPMENTS
Fiscal Policy
Gas Price Hike: Positive Step, But More Needed
Bahrain's decision to raise the price of gas for industrial users, effective from April 1 onwards, marks the government's first effort to
address the sharp deterioration in the state finances. However, this will be far from sufficient and we expect Bahrain's dependence on
Saudi Arabia to increase sharply over coming years.
Table: Fiscal Policy
Monetary Policy
Rate Hikes Ahead Despite Stable Inflation
Consumer price inflation (CPI) in Bahrain will remain stable and primarily driven by the country's tight housing market over the course
of 2015. We expect interest rates to stay unchanged until the second half of 2015, when the Central Bank will be forced to impose a 50
basis points hike to keep up with the US Federal Reserve.
Table: Monetary Policy
Regional: Banking Sector
Lower Oil Prices: Assessing The Impact On MENA Banking Sectors
Lower oil prices will have a mixed impact on MENA's banking sector over the coming quarters. We believe GCC banks are
fundamentally stable as governments continue with infrastructure programmes. However, there will be a slight decline in liquidity due to
a slowdown in deposits. The outlook for Iran is concerning given elevated fiscal deficits and a far weaker economic backdrop. A mong
the oil importers we are particularly sanguine over the prospects for Egypt and Morocco.
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
Availability Of Labour
Table : MENA - Availabilit y Of Labour Risk
Table: Population And Life Expectancy Demographics
Table : Breakdown Of Emplo yment By Sector
Table: Source Of Immigrants, '000
Crime Risk
Table : MENA - Crime Risk
Table: Crime Statistics
Chapter 5: Key Sectors
Automotives
Table : Autos Total Market - Historical Data And Forecasts
Food & Drink
Table: Food Consumption Indicators - Historical Data & Forecasts
Table : Soft Drinks Sales , Production & Trade
Table: Mass Grocery Retail Sales By Format - Historical Data & Forecasts
Other Key Sectors
Table : Oil and Gas Sector Key Indicators
Table : Pharma Sector Key Indicators
Table : Infrastructure Sector Key Indicators
Table : Telecoms Sector Key Indicators
table : Freight Key Indicators
Chapter 6: BMI Global Assumptions
Global Outlook
Weaker EMs To Weigh On Growth
Table: Global Assumptions
Table: Developed States, Real GDP GrowtH, %
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
Table : Emerging Markets , Real GDP Growth , %

Bahrain Country Risk Report Q2 2015

Core Views

Development funds from the GCC and visitor flows from Saudi Arabiawill support Bahraini economic activity over 2015. Nevertheless,the slide in oil prices will weigh down on consumer and businessconfidence, and prompt a moderation in the government’s spendingplans. We forecast real economic growth to slow to 3.4% this year,from 5.3% in 2013.

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

The economy’s medium-term outlook remains contingent upon a lastingsolution being found to the current political crisis. Unfortunately,we maintain our relatively guarded outlook on the prospects that thegovernment and opposition can come to some form of agreementin the near term.

Bahrain’s weak medium-term fiscal prospects will force the governmentto make difficult choices. We believe Manama will have littleoption but to introduce new taxes over the coming years, whilethe issue of spending consolidation will loom large on the agenda.

Support from Saudi Arabia could delay these pressures, but wouldentail a significant loss of sovereignty.

Consumer price inflation (CPI) in Bahrain will remain stable andprimarily driven by the country’s tight housing market over the courseof 2015. We expect interest rates to stay unchanged until the secondhalf of 2015, when the Central Bank will be forced to impose a 50basis points hike to keep up with the US Federal Reserve.


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