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Bahrain Country Risk Report Q2 2016

Bahrain Country Risk Report Q2 2016

Core Views

External financing from the rest of the GCC will help to shield theBahraini non-oil sector from the ongoing retrenchment in publicspending. Despite the negative impact of subsidy cuts on internaldemand, we forecast Bahrain to grow at a relatively robust rate of2.9% this year and 2.6% in 2017.

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 alasting solution being found to the current political crisis. Unfortunately,we maintain our 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 that Manama will havelittle option 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.

The Central Bank of Bahrain (CBB) will continue to follow a procyclicalmonetary policy over 2016, raising interest rates in linewith the US Federal Reserve's moves. Although the government'ssubsidy cuts will trigger inflation, continued strength in the US dollar,subdued commodities prices and the CBB's rate hikes will help tooffset inflationary pressures.


Executive Summary
Core Views
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
External Financing Shielding Growth From Fiscal Pressures
External financing from the rest of the GCC will help to shield the Bahraini non-oil sector from the ongoing retrenchment in public
spending. Despite the negative impact of subsidy cuts on internal demand, we forecast Bahrain to grow at a relatively robust rate of
2.9% this year and 2.6% in 2017.
TABLE: MAIN INFRASTRUCTURE AND INDUSTRIAL DEVELOPMENTS
GDP By Expenditure
TABLE: COMPONENTS OF GDP
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Monetary Policy
Continuing Rise In Rates Throughout 2016
The Central Bank of Bahrain will continue to follow a pro-cyclical monetary policy over 2016, raising interest rates in line with the US
Federal Reserve's moves. Although the government's subsidy cuts will trigger inflation, continued strength in the US dollar, subdued
commodities prices, and the central bank's rate hikes will help to offset inflationary pressures.
Monetary Policy Framework
Chapter 2: 10-Year Forecast
The Bahrain Economy To 2025
Political Risk And Oil Prices Hit Outlook
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 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Economic Reform Efforts Carry Political Risks
Deteriorating relations with parliament, and the unresolved political stalemate between the ruling Khalifa family and the majority Shi'a
population, will complicate the government's economic reform efforts over the coming years. Fiscal austerity risks undermining the
regime's remaining base of support and fuelling further political instability.
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 both Iran and Saudi Arabia, and economic vulnerability.
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Trade Procedures And Governance
TABLE: MIDDLE EAST AND NORTH AFRICA – TRADE PROCEDURES AND GOVERNANCE RISK
TABLE: EXPORT AND IMPORT DOCUMENTS
TABLE: TRADE PROCEDURES BREAKDOWN
Vulnerability To Crime
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Downside Risks Gather Momentum
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: MACROECONOMIC DATA & FORECASTS

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