• Home
• News Article

Bahrain is holding out well

Sunday, May 31, 2009

Gulf News

Notwithstanding adverse effects of global financial crisis, Bahrain's economy scored notable achievements in 2008 in terms of growth of gross domestic product (GDP) and fiscal results. Likewise, results of the first few months point out declining inflationary pressures in 2009.

Nonetheless, the full negative impact of the credit crunch could emerge in 2009, as last year witnessed a mixture of extremes. Oil prices reached a record $147 (Dh539) per barrel by June, only to drop to $32 per barrel by the year-end. Oil is uniquely vital for Bahrain's economy by virtue of accounting for three quarters of treasury income.

Official statistics put the country's GDP growth rate in constant prices at 6.3 per cent in 2008. Albeit lower than that of 8.4 per cent achieved in 2007, but the result of 2008 could not be downplayed given the global economic downturn.

The lower figure is partly attributed to fall of oil production from the onshore field. Output from Bahrain Field decreased notably by five per cent in 2008 reaching about 33,000 barrels per day. The field suffers from age factor, as production dates to 1932. Not surprisingly, oil authorities recently sealed a production and sharing agreement with Occidental Holding of the US and Mubadala of the UAE to develop the field, in a 20-year contract. As partners, Occidental , Mubadala and Bahrain's National and Gas Authority (Naga) hold 48 per cent, 32 per cent and 20 per cent of the new project, respectively.

The deal calls for doubling the field's output in five years. Yet, Naga officials expect production from the Bahrain field to reach 100,000 barrels in eight years.

To be sure, Bahrain's main source of oil comes from its 150,000 barrels per day share from Abu Saafa. Saudi Arabia controls the offshore field, which boasts production of 300,000 per day.

According to official figures, crude oil and natural gas comprised 12.8 per cent of GDP in 2008, down from 13.5 per cent in 2007. However, the figure underscores the role of oil in the economy, as oil refining is included in the manufacturing sector. Nearly half of Bahrain's manufacturing activity relates to refining of crude oil into petroleum products such as diesel.

In fact, other statistics provide proof of dominance of the petroleum sector in the economy. The sector accounted for nearly 80 per cent of total budgetary revenues as well as exports in 2008.

Separately, the budget posted a resounding surplus of $1.4 billion in the fiscal year 2008, thereby reversing a projected deficit of $984 million. The outstanding outcome primarily relates to higher average oil in the year against a projected figure of $40 per barrel. Total revenues stood at nearly $6.9 billion, up 27 per cent versus income generated in 2007.

Still, total expenditures increased by 13 per cent on the back of steady investments on infrastructure projects, especially the expansion of the road network. The authorities carried out 77 per cent of all planned capital projects in 2008, up from 73 per cent in 2007.

Similar to earlier practices, the authorities set aside a portion of the surplus to the following fiscal year, in this case $463 million. The balance was destined to strengthen the country's reserves to cover matters such money in circulation and imports.

Fortunately, released statistics are reassuring about inflation in 2009. The consumer price index fell from 4.3 per cent in April to 3.1 per cent in March this year. Fall of inflationary pressures mirror forecast for fellow Gulf Co-operation Council (GCC) countries. Inflation fell from six per cent in March to 5.21 per cent in April in Saudi Arabia. Clearly, Bahrain has cause for celebration.

 - The writer is a Member of Parliament in Bahrain.

© Gulf News 2009. All rights reserved.