BIZ BAHRAIN JAN-FEB 2018

OBG | Business Report
Bahrain: Year in Review 2017
Oxford Business Group (OBG)
Continued fiscal consolidation and
reform, combined with steady
growth, were the hallmarks of
Bahrain’s year in 2017, with a similar
outlook forecast for the coming 12
months.
Bahrain’s economy expanded faster
than expected, at 3.4% year-on-year in
the first half of 2017, underpinned by a
4.7% expansion in the non-oil economy,
according to data released in November
by the Bahrain Economic Development
Board (EDB). In contrast, the oil sector
contracted by 1.9% during the same
period.
Despite the solid performance
in the first six months, at the end of
August the IMF said it expected GDP
expansion to ease marginally in the
second half of 2017, taking full-year
growth to 2.3%, down from 3% in 2016
and below the EDB’s projection of 3.1%.
While hydrocarbons’ share of GDP
was projected to increase over 2016
levels, when the sector contracted by
0.1%, it still remained low, at negative
0.6%, eroding some of the gains made
by the non-oil component, which was
on track to increase by 2.9%.
The IMF forecast GDP expansion
would slow further in 2018, to
1.6%, on the back of ongoing fiscal
consolidation, although the EDB’s
full-year growth projection is a more
optimistic 2.7%.
Greater debt sustainability reached
One factor constraining growth in
2017 was the fiscal deficit, which stood
at 18% of GDP in 2016. The debt level
continued to restrict public spending
over the year; however, efforts to reduce
it proved successful, with the IMF
expecting the gap to have narrowed to
12% by the end of 2017.
The improved performance came as
a result of increased revenue generated
through higher oil prices and continued
prudent fiscal management, the fund
said, though it noted that rising interest
payments and debt repayment may
slow the pace of reduction in 2018.
Foundations laid for improved
investment climate
Bahrain saw a strong increase in
foreign investment inflows in 2017.
According to data issued by the Central
Bank of Bahrain (CBB), foreign direct
investment (FDI) reached $695m by the
end of October, more than double the
$280m year-end figure for 2016. The
CBB took steps to further enhance the
climate for doing business over the
course of the year, announcing a series
of reforms to encourage FDI flows.
In mid-November the bank lifted
restrictions on Bahrain-domiciled real
estate investment trusts (B-REITs)
to allow all types of investors to buy
into such programmes, before issuing
directives the following month that
expanded the categories of locally
domiciled mutual funds to include
exchange-traded funds.
Inflation remained low in 2017
Inflation remained muted throughout
most of 2017, running at around 1.5%
46 January-February 2018