Bahrain economy to grow 3.7% in 2018 with outlook revised as oil rebounds, BMI says

The Fitch subsidiary has revised up its forecast for the current year and 2019 on the back of higher oil prices

Bahrain introduced a new bankruptcy law, among other legislative reforms intended to encourage greater inward investment. Getty Images

Bahrain, the smallest economy in the GCC, will register an uptick in real GDP growth to  about 3.7 per cent this year, as rising oil prices lower the government's urgency to consolidate fiscal accounts, BMI noted in a report.

On Sunday the island kingdom, which lies offshore Saudi Arabia, announced its biggest hydrocarbons discovery in more than eight decades, which is expected to outsize existing reserves. The potential recovery of oil and gas from the tight reserves off its west coast will come as much-needed relief to Bahrain, which has been saddled with rising public debt, which ratings agency S&P estimated at 81 per cent of GDP in 2017.

Bahrain’s economy has slowed in the wake of the three-year slump of oil prices. The country already had one of the highest break-even prices for oil in the region. The slowdown in the economy prompted the three big ratings agencies to rate Bahrain to below investment grade on the back of a widening deficit.

However, BMI, a Fitch company, has revised up its forecast for Bahrain’s growth to 3.4 per cent for 2019 from 2.9 per cent, following the recent recovery in oil prices, which is expected to boost the kingdom’s fiscal revenues.

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BMI's latest revisions are higher than those projected for the medium term by the country's own state investment agency, the Bahrain Economic Development Board. In December, the EDB said it expected growth to remain at about 3 per cent in the medium term, with the economy expected to have performed around 3.1 per cent over the previous year.

In its latest note BMI said Bahrain's economic growth would moderate from 2020 to about 3 per cent as oil prices stabilised. The agency has suggested declining production as one of the causes for growth to taper. However, the recent discovery of reserves may bode differently for the country’s growth.

Bahrain, which has yet to implement  VAT, unlike GCC peers the UAE and Saudi Arabia, has been projected by BMI to begin implementation of the measure from the beginning of next year, offsetting some growth. The delay, however will help Bahrain avoid inflationary pressures.