Bahrain, the smallest economy in the GCC, will register an uptick in real GDP growth to about 3.7 percent 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 a much-needed relief to Bahrain, which has been saddled with rising public debt, which the rating agency S&P estimated at 81 percent 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 rating 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 percent for 2019 from 2.9 percent, following the recent recovery in oil prices, which is expected to boost the kingdom’s fiscal revenues.
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 percent in the medium term, with the economy expected to have performed around 3.1 percent over the previous year.
In its latest note, BMI said Bahrain's economic growth would moderate from 2020 to about 3 percent as oil prices stabilized. 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.