|
Striking a
positive note
The high oil price and expansionary fiscal policy continue to support
Bahrain’s economic outlook. Parliament has passed a two-year budget for
2007 and 2008. The budget will again be expansionary in 2007, with
spending slated to increase by 19.5% from the previous year’s budget.
Total expenditure has been set at USD 9.9bn for the two years (USD 4.9bn
in each year). Education will account for 15% of the total state budget,
up from 12%. Meanwhile, the allocation for housing projects has
increased by 40% and recurring expenditure is planned to increase by
25%.
Economy Growth
Buoyed by the region wide oil boom, real growth will average 6.4% in
2007-08, reflecting both the strength of oil prices and the expansion of
regional demand for Bahrain’s financial services. Despite the increased
spending in 2006, the budget surplus will strengthen on the back of
higher oil and aluminium revenue. Total revenue is forecast to increase
by 35.8%, with oil revenue increasing by around 30%.
The total exports of Bahrain in 2006 stood at BD4.35bn and oil exports
contributed BD2.93bn of the total exports during the period. The total
exports in 2006 were up by 15.3%, on account of higher oil prices in the
year 2006. The total non-oil exports stood at BD0.88bn or around 20.3%
of the total exports in 2006. The non-oil exports reported an increase
of 4.7% in 2006 and hence the contribution to the total exports has been
the lowest since 2002. The total imports increased by 12.6% in 2006 to
reach BD3.36bn. The total oil imports during 2006 stood at BD1.84bn,
witnessing an increase of 17.6%, while non-oil imports witnessed an
increase of 7.0% and stood at BD1.52bn as compared to BD1.42bn recorded
in 2005
With the fall in oil price from 2007, the budget surplus will
deteriorate going forward, although revenue from the government’s
diversification projects (such as the port development in Hidd) will
increase. The government forecasts a budget deficit of USD 83.7bn for
2007 and 2008; however, the budget is based on a conservative oil price
of USD 40 pb.
Focus on Banking Sector
Bahrain’s banking sector has remained to be a cornerstone in growth of
the local economy. After the oil and gas sector, the financial
institution sector remains the highest contributor to the country’s GDP.
Bahrain has introduced the new central bank in the country, with the
objective to monitor and enhance the banking sector regulations. In July
2006, the Bahrain Monetary Agency (BMA) announced details of a
comprehensive package of regulatory reforms to modernize and strengthen
the licensing framework for banks operating in the Kingdom.
A key feature of the revised framework for banks is the simplification
of existing categories of onshore and offshore banking licenses,
enabling offshore banks to undertake onshore business in a controlled
manner. The existing bank license sub-category of ‘Full Commercial Bank’
is replaced by “Retail
 Bank’. Meanwhile, the two-existing offshore
sub-category, Offshore Banking Unit and Investment
Banking License are
to be merged and replaced with one unified ‘Wholesale Bank’ license
sub-category. The Central Bank of Bahrain (CBB) replaced the Bahrain
Monetary Agency (BMA) in September 2006. Bahrain has been the hub for
foreign banks to operate from to tap the Middle Eastern Markets.
In a further positive development, Bahrain’s Free Trade Agreement (FTA)
with the US should have major benefits for the access of Bahraini
exports into the US markets.
|
