BIZ BAHRAIN JAN-FEB 2018

Focus Feature | Economy Review 2018
planned value-added tax (VAT) as well
as firmer housing and food inflation.
Latest figures showed inflation gaining
momentum, reaching an over one-year
high of 2.4% y/y in October. After falling
sharply in 4Q16 as the initial impact
of subsidy cuts petered out, food price
inflation returned to positive territory in
mid-2017 and is expected to rise further
on the back of planned excise duties on
tobacco and soft drinks. At 5%, the VAT
- which we assume will be introduced
in the second half of 2018 - is projected
to add around 2% to the overall inflation
rate for one year. We see inflation rising
from around 1% in 2017 to 2.5% in 2018. We
expect inflation to remain at or around
that rate in 2019, given the economy’s
decent underlying growth performance.
Budget deficit is expected to gradually
narrow though still high given ongoing
fiscal consolidation efforts as well as
some improvement in revenues.
Fiscal reform has so far been
centered on rationalizing subsidies.
Unlike other GCC countries, government
spending in Bahrain is virtually
unchanged from 2014 levels, highlighting
the challenges in cutting areas such as
salaries and subsidies. The VAT should
raise around $0.3 billion (approximately
1% of GDP) in additional tax revenue per
year. With the cumulative sum of GCC
grant allocations currently standing
at less than $1.3 billion year-to-date,
according to the Economic Development
Board, active projects are projected to
continue to grow at healthy rates.
Key current projects include Alba’s
$3 billion expansion project, a $1.1
billion airport expansion and a gas plant
project worth $355 million. With the
budget deficit hovering at high levels,
the government will continue to look to
domestic and international bond markets
to plug the shortfall.
Bahrain Tourism projects investment
reaches US $ 13 Billion
The Bahrain Economic Development
Board (EDB) recently revealed investment
in Bahrain’s tourism infrastructure
reached over US $13 billion. The figure
covers 14 prominent projects that will
further boost growth in the Kingdom’s
tourism and leisure sector.
The sector witnessed rapid growth
in the past year, with the total number of
tourists visiting the Kingdom increasing
by 12.8% in the first nine months of
2017. The Kingdom is also witnessing
further enhancement to its tourism
infrastructure to support this growth,
which plays a significant role in Bahrain’s
economic diversification efforts.
“The total number of tourists visiting
Bahrain has reached 8.7 million during
the first nine months of this year, a
significant number considering our
resident population of only 1.5 million
people.” said Dr. Simon Galpin, Managing
Director of Bahrain EDB.
“The tourism sector is one of the
key investment sectors we recognise as
having a strong competitive advantage
for Bahrain. It contributes 6.3% to
the country’s GDP, and is set to grow
significantly, as the number of visitors
and leisure activities increase. Bahrain
continues to reaffirm its position as a
tourism destination of choice with a
number of new hotels, retail and leisure
developments currently underway.”
The tourism investment projects
are part of Bahrain’s large-scale
infrastructure development across a
wide range of sectors and are valued at
over US $32 billion. This public-private
sector investment consists of $10 billion
of government funding, US $7.5 billion
under the GCC Development Fund, and
$15 billion worth of investment in the
private sector.
As part of these developments,
Bahrain International Airport
is undergoing a US $1.1 billion
modernisation programme, set to
increase passenger capacity from nine to
14 million per year by 2020. This will go
hand in hand with the new five and fourstar
hotels and resorts in the tourism
development pipeline that will cater to
current and future demand.
Other infrastructure investment
projects include the development of
a number of shopping malls such as
Dilmunia Mall and the Marassi Galleria
shopping complex, to join the recentlyopened
US $159 million Avenues Mall at
Bahrain Bay.
Furthermore, Bahrain’s tourism
strategy also extends to medical-tourism
projects through King Abdullah Medical
City, and mixed-use real estate projects
such as Bahrain Bay, Bahrain Marina,
Diyar Al Muharraq, Water Garden City,
Dilmunia, and Marassi Al Bahrain
where Emaar Hospitality brands such as
The Address Hotel and Vida are under
construction.
Consumer price inflation by sector (%Y/Y)
Real GDP (%Y/Y)
Source: Thomson Reuters Datastream
Source: Information & e-Government Authority, NBK estimates
January-February 2018
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