ANNUAL REPORT JUNE 2010
FEDERATION OF EURO-ASIAN STOCK EXCHANGES
BAHRAIN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Political Outlook
In 2010-11 the rule of the king, Hamad bin
Isa al-Khalifa, is expected to remain broadly
secure. The weakness of the legislature
suggests that no major changes to policy will
arise as a result of the 2010 parliamentary
election.
There will be underlying tensions over
economic inequalities, the halting pace of
political liberalisation and perceptions of
sectarian discrimination.
The main foreign policy concern will be Iran's
(officially civilian) nuclear programme,
although Bahrain will seek to maintain cordial
ties with Iran.
The central government budget is forecast to
record deficits of less than 1% of GDP in
both years as spending continues to grow.
The fiscal deficits will give more urgency to
efforts to develop non-oil government
revenue, possibly including value-added tax.
Bahrain will continue to take part in efforts to
create a Gulf monetary union, despite the
UAE's decision.
The US will remain one of Bahrain's key
international allies and is expanding the
onshore facilities used by the US Navy's Fifth
Fleet. The former colonial power, the UK, will
also remain an important political ally and
business partner, and France is seeking to
step up its political and trade relations with
Bahrain.
Economic performance
Economic policy will remain focused on
efforts to attract more foreign investment to
Bahrain and improve the local skills base.
These policies are driven by the need to
diversify the economy away from oil (as
output is declining), stimulate private-sector
growth and foreign investment, and address
unemployment among nationals.
however. Government spending is believed
to have been a vital support to growth in
2009, especially with consumer credit
stagnating. The government is likely to
maintain an expansionary fiscal policy in
2010 but to begin to rein in its spending–in
real terms–in 2011 as private investment
picks up and as it seeks to avoid a persistent
budget deficit. Investment will be
underpinned by government spending in
2010 but as the global economic recovery
continues, foreign investment should rise in
2011, particularly into services sectors that
cater to the regional market.. The official
consumer price index is widely believed to
understate price pressures. The main risks
stem from the medium-term trajectory of the
US dollar (and thus the Bahraini dinar)
against the euro and other world currencies.
"Bahrainisation" quotas for employing
nationals have not solved the unemployment
problem and so the government is pursuing
other initiatives, including a 1% levy on
salaries to fund an unemployment insurance
scheme and a levy on employers for each
expatriate they employ, which finances
training for nationals. From August 2009,
expatriate workers will have greater freedom
to change jobs, which should slowly
contribute to narrowing the cost gap
between them and nationals. The state's
ability to upgrade its infrastructure and invest
in education will be constrained by the
dependence of the public finances on oil
revenue.
Bahrain intends to enter into a currency
union with Kuwait, Qatar and Saudi Arabia
and to set up a joint monetary council in
2010 as a precursor to a single central bank,
a plan ratified by the parliament in
November. The introduction of a single
currency is likely to take until at least 2013,
as the member states pursue convergence
on inflation and seek a consensus on the
functions of the planned central bank.
The price of dated Brent Blend, a benchmark
crude, is expected to rise to US$75/barrel in
2010 but to fall back again to US$70/b in
2011, with knock-on effects for Bahrain's
export earnings and government revenue.
Lower regional growth and a slowdown in
foreign investment and trade flows are likely
to have reduced economic growth sharply in
2009, to 2.9%. Data for the first half of the
year show that total employment has been
rising, but unemployment, a lagging
indicator, is likely to climb later in 2009 and
possibly into 2010. The impact on private
consumption will be limited by the likelihood
that low-paid expatriate workers, who
typically remit much of their earnings
overseas, will bear the brunt of job cuts,
The current-account surplus is projected to
narrow from 6.3% of GDP in 2010 to 4.2% in
2011, based on our oil price forecasts. Oil
price trends will remain the main determinant
of the trade balance, with oil accounting for
around 80% of export earnings and over half
of the import bill.*
* The Economist Intelligence Unit Limited, November 2009
Key Information Contacts
Central Bank of Bahrain http://www.cbb.gov.bh/cmsrule/bmaindex.jsp
Ministry of Finance http://www.mofne.gov.bh/English/eindex.asp
Bahrain Government http://www.bahrain.gov.bh
Economic Development Board http://www.bahrainedb.com
REAL GDP
(BHD millions)
CONSUMER PRICES (% CHANGE PA; AV)
(%)
6
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
5
4
3
2
1
0
2005
PAGE 52
2006
2007
2008
2009
2010
2005
2006
2007
2008
2009
2010