How Bahrain's politics is standing in the way of its economy
Recent reports on the state of Bahrain’s economy confirm the urgent need to overcome socio-economic and socio-political debacles. Over a span of weeks, Bahrain’s sovereign rating has experienced a downgrade by a major rating agency.
Also, fresh warnings have been sounded over the scale of the public debt amid an alarming budget deficit. A key economic report has rated Bahrain’s economy as the least competitive within the Gulf Cooperation Council (GCC).
To begin with, Moody’s downgraded Bahrain’s government issuer rating by one notch from Baa1 to Baa2. The agency has not ruled out further downgrades. Worse, Moody’s continues to maintain a negative outlook towards Bahrain’s economy.
The agency put forward notable arguments for the move, including susceptibility of Bahrain to domestic and regional political instability in addition to a possible oil price shock.
The Bahraini society has been slow in overcoming issues related to the events of February 2011 when a section of the population took to the streets pressing for reforms. Also, the country runs the risk of importing sectarian troubles associated with the crisis in Syria, reflecting the demographic make-up of its population.
The oil price issue is worrisome by itself and reflects the excessive dependency on the petroleum sector across the board. Suffice to say that the sector, including gas, accounts for 80 per cent of treasury revenues and exports.
In reality, little cushion is available for public finance in case of changes in oil prices. The authorities assumed an average price of $90 (Dh330.5) per barrel for fiscal years 2013 and 2014.
The International Monetary Fund (IMF) estimates the fiscal breakeven point at above $118 per barrel during 2013, something not possible in current market conditions.
Standard & Poor’s, another global rating agency, only revised the outlook for Bahrain from negative to stable at the start of the year. It attributed the move to factors such as the steady public sector spending. Clearly, the outlook remains troublesome.
In addition, public debt levels are becoming increasingly worrying. Outstanding debt stood at $11.2 billion at the start of 2013 or 40 per cent of the GDP (gross domestic product), which amounts to around $27.7 billion and even lower by other estimates.
However, the debt level could reach about $13.3 billion and $15.7 billion by the end of 2013 and 2014 respectively, reflecting a runaway budgetary shortage. The final agreement between the legislative and executive branches projects a deficit of $2.1 billion and $2.4 billion in 2013 and 2014 respectively.
Still, the IMF warns that the debt level, if continued at the current pace, could jump to above $20 billion in 2018, and above the 60 per cent level stipulated by the Gulf Monetary Union scheme.
In retrospect, outstanding debt merely amounted to 10 per cent of GDP in 2008.
The 2013-14 Global Competitiveness Report ranks Bahrain as the least competitive economy among GCC states. Sadly, Bahrain’s ranking dropped by eight notches in a single year, the worst among GCC states, to be ranked 43rd globally. Conversely, the same report assigns Qatar a ranking of 13 among the 148 economies reviewed.
The only way forward for Bahrain is to find a lasting, and a just, solution to the political question with all the positive implications it will have for the economic and social settings. Undoubtedly, Bahrain has the capacity to become a model regional economy thanks to the capabilities of its human resources.
— The writer is a Member of Parliament in Bahrain.