Country Report Bahrain February 2009

Outlook for 2009-10

• In 2009-10 the rule of the king, Hamad bin Isa al-Khalifa, is expected to remain broadly secure, with the Al Khalifa family retaining control over the executive branch of government and the legislature remaining weak.
• Tensions are rising over economic inequalities, the halting pace of political liberalisation and the arrest of popular opposition activists accused of links to an alleged bomb plot. There is some risk of low-level bomb or arson attacks.
• The main foreign policy concern will be Iran's (officially civilian) nuclear programme. Bahrain will seek to maintain cordial ties, but relations will be strained by concerns about Iranian respect for Bahrain's sovereignty.
• The government's ability to increase spending and boost living standards in 2009-10 is likely to be severely constrained by lower oil prices.
• In the light of further weak economic data, the Economist Intelligence Unit now projects a contraction in the global economy in 2009.
• Real GDP growth is forecast to slow to 2.4% in 2009, as regional and international demand for Bahrain's exports weakens, and to remain subdued at 3.1% in 2010 as government consumption growth slows.
• Bahrain's current account is expected to remain in surplus over the outlook period, albeit only just in 2009.

Monthly review

• Riots have spread across Shia villages following the arrest in January of three prominent Shia activists who, the authorities say, have been implicated in an alleged plot to bomb civilian targets on Bahrain's National Day.
• The elected chamber of parliament has narrowly ratified a bill proposed by al-Wefaq, a Shia bloc, calling for a national dialogue to resolve the tensions.
• An Iranian official has allegedly claimed that Bahrain is rightfully part of Iran, rekindling old fears of Iranian expansionism in the Gulf, although Iran's ambassador to Bahrain has said that the official was misquoted.
• The passage of the two-year 2009-10 budget has been delayed as MPs have objected to government plans to cancel last year's inflation allowance, although there is anecdotal evidence that food prices have begun to fall.
• The start of construction on the causeway between Bahrain and Qatar has been delayed and other projects are being held back by financing difficulties.
• Several banks have had their credit ratings downgraded.
• The Central Bank's foreign reserves fell from US$4.7bn in May to US$3.4bn in November, according to the latest data from the IMF.

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52