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By Matthew Martin, Banking and Finance Editor for MEED
At the end of 2010, the outlook for Bahrain was positive. The government had managed to get through parliamentary elections in October without major incident and had successfully tapped international capital markets. Oil prices were high and continuing to rise, and the country's economy was recovering from the 2008-09 global financial crisis.
Bahrain was preparing to consolidate those gains in 2011 with further bond issues and a series of infrastructure projects that would ease some of its social tensions, while politically, it would assume the role of secretary-general of the GCC from April.
All that was quickly unwound when a youth-led protest movement mobilised on 14 February, inspired by uprisings elsewhere in the region. By 15 March, King Hamad bin Isa al-Khalifa had declared a state of emergency that lasted until 1 June.
The anti-government demonstrations, which brought thousands of Bahrainis onto the streets, have been followed by a wave of recrimination by the authorities. According to opposition groups, up to 8,000 Shia workers have been sacked or suspended for taking part in the protests. Intimidation of doctors and nurses has been widely reported and human rights groups are alleging that prisoners have been tortured, although the government denies this.
Forecast downgrades, GCC stimulus package
The net result of the unrest has been a sharp reversal in the direction of Bahrain's economy. Analysts have been hastily revising down their forecasts. The UK's HSBC now expects gross domestic product growth to remain flat in 2011. The Washington-based IMF suggests a more optimistic 3.1% increase, but this is down from earlier estimates of 4.5% growth.
Meanwhile, credit default swaps rates for Bahrain rose sharply in the wake of the protests, convincing the central bank to put a bond issue on hold until rates fell again.
The GCC has agreed to give Manama $10bn over the next 10 years to revive its economy and address the social problems that brought demonstrators onto the street. A stimulus plan is expected before the summer, detailing a raft of projects, including an expansion of Bahrain International airport, a new oil refinery at Sitra and, perhaps most important politically, the construction of more social housing.
Bahrain faces two major challenges. First, it must create more jobs to alleviate the economic pressures that drew so many of its poor Shia community to protest.
Manama's efforts so far have been laudable, creating the Labour Market Regulatory Authority which charges companies a fee for employing expatriates and uses the proceeds to train locals to take skilled jobs. It has also aggressively pursued economic diversification through industrialisation. But, clearly, more needs to be done.
Aluminium Bahrain, one of the world's largest aluminium smelters, is planning further expansion and Manama hopes that through stimulating small-medium enterprises in its Bahrain Logistics Zone, it can create further jobs.
The second challenge is to restore stability to the country and reconcile the majority Shia population with their Sunni rulers. That will be more difficult following the recent security crackdown, which has acted to fan tensions.
Another election is promised, but the severity of the government response in recent months risks radicalising more Shias.
Staff
