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22/08/2017 - 13:31hs

Bahrain to post weaker growth in 2017

The IMF expects a growth of 2.3% for the country’s GDP this year, below the 3% of last year’s. Lower oil prices brought forth many consequences to the economy and the need of a fiscal adjustment.

São Paulo –The Gulf’s Arab country Bahrain should see weaker growth this year due to the consequences brought to the country’s economy by lower oil prices. Bahrain’s Gross Domestic Product (GDP) increased 3% last year and is expected to grow by 2.3% this year and by 1.6% in 2018, according to a forecast made public by the the International Monetary Fund (IMF) this Monday (21).

The Fund states that the country’s external and fiscal vulnerabilities increased due to the decline of oil prices. Oil accounts for over 80% of the Middle East country’s revenues. The growth seen last year was supported by strong, 3;7% growth of the non-oil sector, boosted by the implementation of projects funded by the member countries of the Gulf Cooperation Council (GCC).

Average inflation in the country remained moderate last year at 2.8%, the banking sector remained well capitalized, but banking deposits and the supply of credit to the private sector declined. The fiscal deficit reached 18% of the GDP, with government debt rising to 82% of GDP and the international have declined, despite the implementation of significant fiscal adjustments by the government.

The increase in oil prices early this year and the continuous cut of expenditures by Bahrain should cause some impact in the economy in 2017, such as the improvement of the fiscal deficit to 12% of the GDP, according to the Fund. However, in the long term, the Fund expects the government’s deficit to narrow only slightly.

In its report, the Fund praised the government for the fiscal adjustment, but states that additional actions are needed to restore the country’s fiscal sustainability, bring down the government’s debt and reduce the need for financial funding. The measures should be followed by a strong communication campaign to explain the fiscal plan to the population and, thus, strengthen public awareness and market confidence.

The Fund advises, among other measures to cut spending, reducing energy subsidies and the wage bill. The Fund also advises a strong effort to increase revenues of the non-oil sector, such as the implementation of the Value-Added Tax (VAT), but alerts to the importance of minimizing the adverse impact on vulnerable groups.

The Fund states that the local exchange rate peg remains appropriate, however suggests that the country gradually increase interest rates in relation to the United States, as well as increase the issuance of government securities to discourage capital outflow and strengthen international reserves. The Fund underscored the importance of interrupting the loans by the country’s Central Bank to the government.

The IMF expects Bahrain to register export revenues of USD 15.3 billion this year, above the USD 12.8 billion of last year. The number means an increase of 19.5%, but the country used to get a lot more from exports due to higher oil prices. In 2013, the saw USD 25.6 billion in foreign trade revenue, which went down to USD 23.5 billion in 2014 and to USD 16.5 billion in 2015.

*Translated by Sérgio Kakitani

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