Country Report Bahrain June 2008

Outlook for 2008-09

• The rule of the king, Hamad bin Isa al-Khalifa, is generally stable, but tensions will persist between the Sunni-dominated political elite and the generally less well-off, and mostly Shia, majority, resulting in some social unrest.
• Policymaking will be dominated by the ruling family, which holds most key cabinet posts. The powers of the elected Chamber of Deputies, in which the largest group is a Shia Islamist bloc, al-Wefaq, are limited.
• Internationally, the US, the UK and Saudi Arabia will remain Bahrain's key allies. The government will remain concerned about the Iranian nuclear programme, but will maintain openly cordial relations with Iran.
• Rising public spending will be facilitated by high oil prices, which will offset the impact of a gradual decline in oil output and will also help to maintain current-account and fiscal surpluses.
• Buoyed by strong regional demand, real GDP growth is forecast to average 6.9% a year in 2008-09. However, inflation is also expected to rise, to an annual average of 7.3% in 2008-09, from 4.4% at end-2007.

Monthly review

• The government has said that low-skilled Bangladeshis will no longer be able to obtain work visas, after a Bangladeshi allegedly killed a Bahraini. Local businesses and human rights groups have condemned the move.
• Bahrain has been re-elected to the UN Human Rights Council by UN member states. The country subsequently announced reforms to its press law.
• A member of Bahrain's small Jewish community, Huda Noonoo, has been appointed as Bahrain's new ambassador to the US. Ms Noonoo is believed to be the first Jewish ambassador to represent an Arab country.
• Citing concerns about inflation, the Central Bank governor has said that he would like to see a slowdown in government spending in 2008-09.
• The local Gulf Daily News has reported that the central government budget recorded a gross surplus BD218.6m (US$581m), or 3.1% of GDP, although this fell to just 0.6% of GDP after BD175m was rolled over for spending in 2009.
• A study commissioned by the telecoms regulator has found the tariffs charged by the incumbent telecoms provider, Batelco, to be out of line with costs.
• According to Central Bank data, Bahrain recorded a current-account surplus of BD1,092.9m in 2007. The data suggest that spending on non-oil imports barely grew.
• Inward foreign direct investment flows stood at US$1.8bn in 2007, lower than in 2007, but more than twice the average of the past ten years.