Country Report Bahrain June 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.
• There will be underlying tensions over economic inequalities, the halting pace of political liberalisation and perceptions of sectarian discrimination.
• The main foreign policy concern will be Iran's (officially civilian) nuclear programme, although Bahrain will seek to maintain cordial ties with Iran.
• The central government budget is forecast to record deficits of 2.4% of GDP in 2009 and 3.4% of GDP in 2010 as lower oil prices constrain revenue.
• The fall in oil prices will give more urgency to efforts to diversify revenue, possibly including the introduction of value-added tax (VAT).
• Bahrain will continue to take part in efforts to create a Gulf monetary union, despite the UAE's decision to pull out of the project. Progress may be slow.
• Real GDP growth is forecast to slow to 3.1% in 2009, as international demand for Bahrain's exports weakens, but will recover modestly to 3.3% in 2010.
• Bahrain's current account is expected to record surpluses of 4% of GDP in 2009 and 5.2% of GDP in 2010, based on our oil price assumptions.

Monthly review

• Elected MPs have voted to suspend the monthly labour fees for expatriate workers and to abolish the 1% unemployment levy on Bahraini salaries, but the moves have yet to be approved by the appointed upper house.
• The elected chamber of parliament has approved a new law governing the terms under which the government can acquire land for projects.
• New data have put the gross budget surplus in 2008 at BD547m (US$1.5bn), or 7.5% of GDP, of which BD175.2m has been rolled over for spending in 2009.
• In an indication of the pressures on public spending, parliament has approved tighter eligibility criteria for an "anti-inflation" grant and has reduced the proposed pay rises for ministers.
• A new report by the telecoms regulator has shown that the broadband Internet penetration rate rose by 50% in 2008, to 10% of the population, taking the number of subscribers to 110,000. Mobile-phone penetration was 130%.
• The Central Bank has published 2008 GDP data showing overall real growth of 6.3% and non-oil growth of 7.2%.
• The Central Bank has said that a second wholesale bank, Awal Bank, is to restructure its debt following problems reported at its Saudi parent company.

This report covers the following industry codes:
SIC Code: 37;49;60;47;39;2834;48
NAICS Code: 336;22;52;48;31;3254;517