Twin surpluses expected this year in Bahrain

Emirates NBD: The hydrocarbon sector to boost current account, budget balances
Twin surpluses expected this year in Bahrain

Emirates NBD expects to post twin surpluses this year, as a result of the improved dynamics in the hydrocarbon sector that could boost both current account and budget balances over the next two years.

According to a report commissioned by Emirates NBD on Bahrain’s economy, the country’s GDP increased by 4.3 percent on an annual basis in Q4 2021, bringing full-year 2021 GDP growth to 2.2 percent. 

The non-oil sector recorded an expansion of 4.8 percent y/y in Q4 2021 with transportation, hospitality, financial services, and utilities posting strong growth.  

Bahrain’s Finance Ministry forecasts real GDP growth at 4.1 percent in 2022, higher than our forecast of 3.4 percent.

The World Bank expects Bahrain’s economic growth to accelerate to 3.5 percent


The World Bank expects Bahrain’s economic growth to accelerate to 3.5 percent  y/y in 2022 boosted by the surge in energy prices.

The World Bank said that the rebound was mainly underpinned by growth in non-hydrocarbons, aided by strong expansion in the transportation and communication sector, one of the hardest hit by the pandemic.  The expansion of the Sitra oil refinery and development of the Khaleej Al Bahrain shale oil project will support the country’s growth outlook going forward, it added. However, the World Bank noted that over the medium term, Bahrain’s non-oil economic activity will be dampened by fiscal consolidation.

Twin surpluses


Emirates Dubai National Bank report suggests that improved dynamics in the hydrocarbon sector will benefit both the current account and budget balances over the next couple of years.

 Preliminary data show Bahrain’s current account recorded a surplus of $2.6 billion in 2021 or 6.7 percent of GDP.

Also, non-oil exports jumped 53 percent y/y last year.  

Moreover, Emirates NBD expects the current account surplus to widen to 9.1 percent of GDP in 2022. 

Net foreign assets at the central bank rose to $4.3 billion at the end of February, roughly three months’ import cover.

Emirates NBD further expects the budget to move from an estimated deficit of -6.6 percent of GDP in 2021 to a surplus of 3.6 percent of GDP this year and remain in surplus through 2023. 

VAT increase and rising food prices drive inflation


According to the findings, inflation in Bahrain has accelerated this year, reaching 3.2 percent y/y in February from -0.4 percent y/y in December 2021. 

The doubling of the VAT rate to 10 percent from the start of this year has been the main source of consumer inflation in Bahrain, but higher food prices have been a key driver as well. 

However, rising food prices also played a key factor in driving inflation. Food Consumer Price Index (CPI) was up 12.1 percent  y/y in February, and restaurant prices have increased 13.1 percent from a year ago. 

For now, the pass-through of higher global oil prices remains limited, with transport CPI up 2.7 percent y/y in February. In this context, Emirates NBD expects CPI to average 3.0 percent in 2022, up from -0.6 percent in 2021.

Fitch affirms Bahrain’s rating with a stable outlook


According to the analysis, Fitch Ratings has affirmed Bahrain’s long-term foreign-currency debt rating at ‘B+’ with a stable outlook.

The agency noted that Bahrain’s ratings are supported by strong financial backing from partners in the GCC, a high level of economic development, and a robust macroeconomic outlook.

Fitch also expects that Bahrain will continue to receive support from Saudi, the UAE, and Kuwait. The agency noted that the updated FBP was accompanied by a statement of ongoing support from Bahrain’s GCC partners who are providing financing from the $10 billion packages agreed upon in 2018 alongside the initial Fiscal Balance Program (FBP). As of end-2021, $3.1 billion of the GCC package remained to be disbursed, which would cover half of Bahrain’s $6 billion of maturing Eurobonds and Sukuk in 2022-2024.

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