Bahrain's economy to grow 2.3% this year on lower expenditures and rising investments

Country plans to balance its budget by 2022 by increasing revenues from the non-oil sector

Bahrain's economy is expected to grow 2.3 per cent this year and next. Alamy 
Bahrain's economy is expected to grow 2.3 per cent this year and next. Alamy 

Bahrain’s economy is forecast to grow 2.3 per cent this year and next while expanding by an average of 2.4 per cent annually until 2022, as the smallest Arabian Gulf economy continues to cut expenditures and invest heavily on infrastructure projects.

“We expect the government's plans to promote infrastructure development, including several large projects like the refinery modernisation program, to support growth,” S&P Global rating said in its latest report on the kingdom.

The rating agency estimates that the private sector will invest $15 billion (Dh55bn), government-owned entities about $10bn, and $7.5bn will come from GCC funds for infrastructure investment during the forecast period. As of year-end 2018, about $2.5bn of the infrastructure support fund has already been disbursed and S&P expects about $870 million will be released this year.

Bahrain's economy slowed in 2018 to 1.8 per cent on the back of a reduction in oil production, its main source of revenue, and a lull in the financial services sector, which accounts for a major chunk of its non-oil economy. However, the kingdom’s relatively diversified economy still benefits from its proximity to the large market of Saudi Arabia and a strong regulatory oversight of the financial sector.

Last week Moody’s Investors Service changed Bahrain’s banking outlook to stable from negative on stronger government finances, prospects of economic growth and stronger government finances with the help of a $10bbn aid package pledged from Arabian Gulf neighbours.

Bahrain plans to balance its budget by 2022 by increasing revenues from the non-oil sector of the economy through implementation of measures such as levying VAT. The government also depends heavily on expenditure reduction efforts including cutting the public sector wage bill.

“We expect increases in non-oil revenues, especially from the introduction of VAT in 2019. Though implementation will be gradual, we assume on average that VAT introduction could have a revenue-raising effect equal to about 1 per cent of GDP a year,” S&P said.

Published: June 2, 2019 02:48 PM

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