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Is Bahrain partially turning the corner financially?

Bahrain is undergoing economic hardships but there are some very positive signs of recovery

Bahraini government revenues in the first half of 2020 fell to BD910 million ($2.4 billion), down 29% Manama ranked first in the world on the global financial attractiveness rankings Retail activity is on the rise with sales of non-essential goods growing by 12% in June and 28% in July

Bahrain is strapped for cash and will seek financial support from neighboring GCC countries amid the double whammy of low oil prices and persistent COVID-19 pandemic.

Oil comprises 85% of Bahrain’s budget revenues.

Figures released by the Ministry of Finance and National Economy showed that government revenues in the first half of 2020 fell to BD910 million ($2.4 billion), down 29% compared to the same period last year. Oil revenues were down 35%, as the price of crude plummeted and non-oil revenues were down 13% year-on-year due to economic contraction driven by COVID-19.

But there is some good news. 

Bahrain is financially attractive

Manama ranked first in the world on the global financial attractiveness rankings, dominated by GCC cities where Riyadh was 4th, Abu Dhabi stood in 7th and Dubai in 12th, according to AIRINC’s latest Global 150 Cities Index, which ranks 150 of the top global locations according to financial attractiveness and lifestyle attractiveness. 

It combines local salary levels, tax rates, living costs, and living conditions to assess how appealing each location is to live in.

Manama also jumped 15 places for overall attractiveness, to 48th.

Bahrain offers one of the easiest and most cost-effective environments to set up and operate a business in the world. Businesses operating in the Kingdom enjoy 0% tax and 100% foreign ownership allowed.

Undergoing reform programs and adopting a digital transformation especially in banking and finance, Bahrain was recently named the fourth most improved economy in the world by the World Bank’s latest Ease of Doing Business report. 

Read: Bahrain economy suffers despite good handle on COVID-19

Government help showing results

Bahrain’s government has raised its debt ceiling to 15 billion dinars ($39.79 billion) from 13 billion dinars to help finance public spending, the cabinet said recently.

The International Monetary Fund (IMF) has forecast Bahrain’s fiscal deficit will jump to 15.7% of gross domestic product (GDP) this year from 10.6% in 2019. S&P Global Ratings predicts Bahrain’s economy will shrink a full 5% in 2020 alone, but to rebound in 2021 with real GDP expanding by 3.5%.

The debt ceiling will help cover debt installments for the financial years 2020 through 2022, the cabinet said in a statement.  

Bahrain bolstered its finances in May with a $2 billion bond issuance to help plug its budget deficit.

Bahrain’s Banking support

Ahmed Abdul Rahim, who is the chief executive officer of Ithmaar Bank, a Bahrain-based Islamic retail bank said: “The recent decision to focus government support on the 12 most-affected private sector industries was a step in the right direction.”  

The Central Bank of Bahrain (CBB) decided to cut interest rates and to reduce reserve requirements on banks to help with loan flexibility and a 6-month deferment of financing installments for both individual and corporate debtors, despite this preventing fresh liquidity for new financing schemes.  

The banking regulator also allowed the liquidity reserve ratio for retail banks to be reduced to 3% from 5% 

A maximum cap of 0.8% has also been set on the collection fees imposed by local banks and finance companies on debit card transactions, to reduce costs for companies.

“The CBB did step in to provide that necessary liquidity banks needed to support its key position in the national economy, accounting for 16.5% Bahrain’s GDP, creating more than 14,000 jobs mostly for Bahrainis,” said Abdul Rahim.

Read: Bahrain launches virtual mall with 100 stores amid COVID-19 shop closures

Stimulus package extension

Bahrain government’s decision of June 29, giving a three-month extended reprieve to businesses hardest hit by the coronavirus downturn, followed a support package of BD4.3 billion ($11.4 bn) announced in March.

The bulk of the package comprises a BD3.7bn ($9.8bn) increase in loan facilities from the CBB for debt deferment and additional lending in the economy.

An urgent proposal this late August to defer until the end of the year all bank loan installments owed by Bahrainis has been backed by all the MPs.

Economic activity on the rise

Consumer activity is on the rise with sales of non-essential goods growing by 12% in June and 28% in July, while sales at food outlets rose by 9% and 15%, respectively.

Total exports increased by 2% and 12% in June and July.

Finance and National Economy Minister Shaikh Salman bin Khalifa Al Khalifa said visitors to shopping malls jumped by 20% and 30% in June and July, while petrol sales saw a rise by 15% in June and 13% in July.

New individual commercial registrations soared by 109% in June and 4% in July.

Real estate transactions jumped by 55% and 19% in those 2 months as ell, while building permits more than doubled, increasing by 124% in June, compared with the same period last year.

Also, in the first half of 2020 Bahrain awarded 769 tenders valued at $1.7bn, according to data released by the Bahrain Tender Board.

  • Construction and engineering sector: $588.3 million 
  • Oil and gas sector: $416.3 million 
  • Materials and equipment sector: $292.6 million
  • Services sector: $202.4 million.
  • Aviation sector: $172.2 million

Speaking about the allotment to small and medium enterprises, chairman of Tender Board, Shaikh Nayef bin Khalid Al Khalifa, said that a total of 47 public tenders worth a combined $21.8 million were awarded to SMEs.