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Bahrain’s Balancing Act The current oil price outlook has created a conducive environment for Bahrain to proceed with ambitious reforms under favourable macroeconomic and financing conditions that can put debt on a firm downward path
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ahrain’s economy is still in bailout territory although the authorities are optimistic that a rally in oil prices and an economic rebound from pandemicinduced recession will help replenish government coffers. Global benchmark Brent has mostly traded above the $100 mark since February, following Russia’s invasion of Ukraine. The current oil price outlook has also created an ideal environment for the Gulf
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state to proceed with ambitious reforms under favourable macroeconomic and financing conditions and to put debt on a firm downward path. The International Monetary Fund (IMF) projected in April that the oil revenues in the Middle East and Central Asia this year will reach $818 billion, an increase of $320 billion from the Washington-based lender’s assessment last October. Bahrain has a relatively diversified economy, a beautifully regulated financial
Banking and Finance news in the MEA market
sector, a well-educated workforce and a low-cost environment. It also has some very useful friends. The Gulf state, which outlined plans to balance its budget by 2022, as part of a financial aid package from its oil-rich neighbours was forced to push back that target due to the unprecedented impact of the pandemic. The kingdom is also implementing several austerity measures that were introduced over the last two years including a doubling of value-added tax (VAT) to 10% to maintain the country’s access to the international debt markets. Bahrain’s banking system remains relatively resilient with regulations broadly in line with regional peers. Earlier this year, S&P Global said that the Gulf state’s banking sector is poised to benefit from expected interest rate hikes, assuming the sector adopts a pragmatic approach by not reflecting the rate increase systematically where it could cause borrowers to default.
