IMF Says Bahrain’s Political Unrest Reduces GDP Growth To 2% In 2011
Real GDP growth in Bahrain in 2011 is expected to reach about 2%, down from 4.1% in 2010, according to the International Monetary Fund (IMF) in its latest Article IV consultation with Bahrain. Disruptions caused by protests during the first half of the year, coupled with the weaknesses in the financial and tourism sectors, have depressed growth, the IMF said. But the “macroeconomic impact of the unrest has been cushioned by the largely unaffected oil and aluminum sectors – the former contributing over 85% of fiscal and external receipts,” the IMF added. Inflation turned negative during 2011, largely due to falling real estate rents.
The IMF went on to note that the impact on financial markets had been more limited, but capital outflows increased significantly, resulting in a decline in official reserves, and said that “there was a modest shift into foreign currency deposits in March 2011, but this was now been reversed, and overall deposits at retail banks continue to rise.” It added that reserves had fallen since the start of 2012, despite an improved current account of about $4.2bn at end-2011, well above seven months of import cover. The IMF pointed out that the strengthened current account reflects higher oil receipts and subdued imports as economic activity slowed down.
Bahrain: Selected Economic and Financial Indicators, 2006–11
2006
2007
2008
2009
2010
Est 2011
Production and Prices
(% Change, unless otherwise indicated)
Real GDP
6.7
8.4
6.3
3.1
4.1
1.8
Real Oil GDP 1
-1.0
1.1
0.4
-0.3
0.1
4.1
Real Non-Oil GDP
8.1
9.6
7.2
3.6
4.6
1.5
Nominal GDP (in $Bn)
15.8
18.5
22.1
19.3
22.7
26.5
Consumer Price Index (period average)
2.0
3.3
3.5
2.8
2.0
1.6
Financial Variables
(In % of GDP, unless otherwise indicated)
Total Revenue
30.9
29.3
32.4
23.8
25.8
27.7
Of which
: Oil Revenue
23.8
23.5
27.7
19.8
22.0
24.3
Total Expenditure
26.1
26.2
24.7
28.7
30.9
28.5
Overall Fiscal Balance
2.7
1.9
4.9
-6.6
-6.6
-2.3
Change in Broad Money (%)
14.9
40.8
18.4
6.5
11.7
0.9
External Sector
(In $Bn, unless otherwise indicated)
Exports
12.2
13.6
17.3
12.1
13.6
16.8
Of which
: Oil and Refined Products
9.2
10.8
13.8
9.1
10.2
12.9
Imports
-10.0
-10.9
-14.2
-9.6
-11.2
-11.6
Current Account Balance
2.2
2.9
2.3
0.8
0.8
1.1
In % of GDP
13.8
15.7
10.2
4.1
3.4
4.2
Gross Official Reserves (end period)
2.7
4.1
3.8
3.5
4.8
4.2
In Months of Imports (including crude oil imports) 2
2.6
3.1
4.1
3.3
4.3
3.6
In Months of Imports (excluding crude oil imports) 2
5.1
7.6
5.4
6.3
7.8
7.6
Real effective exchange rate (% change)
-2.9
-7.0
15.4
4.5
-2.4
-5.7
Source
: Bahraini authorities and IMF staff estimates.
1. Includes crude oil and gas.
2. Imports of goods and non-factor services for the following year.
According to the IMF the deepening crisis in the Eurozone has contributed to further deleveraging of the wholesale banking sector in Bahrain but broader economic impacts have been limited so far. And “the principal impact on the domestic economy has been the associated loss of employment in the financial sector, as contagion to the conventional retail banks appears to have been contained.”
The IMF observed that the fiscal stance has been expansionary, with the break-even oil price reaching $114/B in 2011 – the highest level in the GCC – compared to just $80/B in 2008. It added that expenditure commitments were increased permanently through wages and associated allowances – a 15% salary rise for all civil servants in August – and transfer increases as well as via one-off cash transfers. High global oil prices and revenues in 2011 allowed this rise in budget expenditure.
