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Bahrain Country Risk Report Q4 2018

Bahrain Country Risk Report Q4 2018

Growth will remain robust in 2018, as rising oil prices enable substantial investment spending from the government and the GCC. By 2019, however, the imple-mentation of VAT and tighter government finances will take a toll on both private consumption and fixed capital formation.

Continued repressive measures against the political opposition will solidify the government's position ahead of November elections. While critically weak finances and recurring unrest pose notable risks, near-unconditional support from Saudi Arabia virtually guarantees the government's survival.

The recently announced bail-out package by Saudi Arabia, the UAE and Kuwait will bolster investor confidence, limiting pressure on Bahrain's foreign reserves and tempering the country's borrowing costs. While we expect the GCC will demand Bahrain enact some spending cuts in return for assistance, the extent of fiscal consolidation will be limited, keeping structural risks high.

The Central Bank of Bahrain will raise interest rates faster than the US Federal Reserve in H218 to temper inflation expectations and support foreign currency inflows. That said, the recent announcement of a bailout programme by Gulf neighbours will help ease pressures on the currency, enabling the CBB to keep rate hikes modest.

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 credit default 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
Oil Gains To Support Bahrain's Investment Drive
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
Central Bank Of Bahrain To Hike Rates Faster Than Fed
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Bahrain Bailout Will Limit Risks To Short-Term Stability
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES, 2017
Bahrain Country Risk Q4 2018Contents10-Year Forecast
The Bahrain Economy To 2027
Diversification And Political Stability Key To Long-Term Growth
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Bahraini Crackdown Will Continue Ahead Of November Election
TABLE: COMPOSITION OF NATIONAL ASSEMBLY
Long-Term Political Outlook
Social Tensions Pose Biggest Long-Term Threat
Global Macro Outlook
Pressure On EM Grows, As Do Divergences
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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