3.6 percent non-oil growth during 2021, supported by the rapid pace of vaccines
Gradually halting government stimulus packages during 2022
– $ 3.2 billion, the 2021 budget deficit
-2022 for reduced recurring spending
The National Bank of Kuwait report expected that the Bahraini economy will witness a return to moderate growth this year at a rate of approximately 2 percent, in light of the easing of the closure restrictions due to the rapid pace of vaccination, and it is likely that the fiscal deficit will narrow to 7.2 percent of GDP during 2021, then it will reach An average of 4 percent of GDP during the years 2022-2023, down from its estimated percentage of 13 percent for 2020.
He explained that debt rates will remain high, exceeding 100 percent of GDP during the projection period, which puts financial reform among the priorities that must be implemented once the repercussions of the pandemic recede, in order to achieve financial balance, which will contribute to reducing public debt levels, indicating that inflation It may rise to only about 1 percent during 2021 in light of an expected slowdown in real estate rents.
The report suggested that the economic recovery will be gradual with a 2 percent rise in gross domestic product during 2021, then a growth of 3.9 percent, on average, during 23-2022, explaining that its expectations reflect a recovery in the non-oil sector, which shrank by 7.5 percent during 2020. It decreased by 7.8 percent on an annual basis during the first nine months of last year, as a result of the decline in the hospitality, communications and transportation sectors.
The report expected non-oil growth to reach 3.6 percent during 2021, supported by the rapid pace of distributing vaccines, which included about a quarter of the population by mid-March, and could reach more than 60 percent by the end of August, as Bahrain ranked first among the best countries. Performance in distributing vaccines.
Recovery of «hospitality»
The report showed that increasing the oil refining capabilities of the Bahrain Petroleum Company (Bapco) (which is expected to be completed in 2022) could contribute to an increase in non-oil growth to about 3.3 percent in the medium term. However, the recovery in the hospitality sector (which constitutes 7 percent of GDP) to pre-crisis levels could be delayed beyond 2023, as this depends more on the global trajectory of the pandemic and the easing of lockdown measures.
As for the oil sector, the report indicated that it is expected to witness a decline of 4.4 percent during 2021 after an estimated rise of 2.9 percent during 2020, explaining that this decline reflects an expected decrease in oil production by 5.9 percent on average for 2021 to 175 thousand barrels per day. In light of the measures to reduce production in accordance with the agreement of the “OPEC” group and its allies.
He added that in the medium term, oil production is likely to rise to about 200,000 barrels per day during 2023, while gas production is expected to grow by 5 percent annually in light of the gradual recovery in global energy demand with the development of the Gulf of Bahrain field and gas stocks.
The report favored maintaining accommodative monetary policy in the medium term, as interest rates usually tend to move in line with US interest rates due to the exchange rate regime linked to the dollar, indicating that inflation has recorded negative rates of -2.3 percent during 2020, but it may It will rise moderately during 2021 due to weakness in the real estate sector, after the number of expatriates decreased by 2.9 percent during 2020.
He stated that the government stimulus packages that were launched to support the economy so far could be gradually stopped during 2022, and inflation could rise slightly during the years 2022-2023 to reach about 1.2 percent, compared to -2.3 percent during 2020, he explained. Moreover, the postponement of loan installments payments (until June 2021) will provide some support to domestic demand during the current year, and loans from retail banks to the private sector may rise 3.6 percent during the period 2021-2023, supported by the economic recovery and government support policies.
The report indicated that the double shock of the Corona epidemic with the decline in oil prices led to the deterioration of the financial situation, as the budget deficit reached about 13 percent of GDP for 2020.
He stated that the government financial and monetary packages are estimated at 4.5 billion Bahraini dinars, or 34 percent of the GDP (of which 3.7 billion Bahraini dinars are to increase the Central Bank of Bahrain loan facilities, allow for deferral of installment payments and an extension of the loan repayment period), while the rest includes salary payments for Bahraini citizens. , And the cost of exemption from utility bills and municipality fees.
He expected these measures to lead to an increase in government spending by about 0.9 billion Bahraini dinars compared to the 2020 budget, however, the high rate of vaccine distribution so far could allow the economic support measures to be stopped faster.
He stated that, according to estimates, the deficit in the 2021-2022 budget could reach about $ 3.2 billion (about 9 percent of GDP) for the year 2021, as a result of a slight decrease in recurrent spending with an increase in capital spending by 35 percent to $ 0.7 billion.
He expected the deficit to decrease to about 7.2 percent of GDP in 2021, and to an average of 4 percent of GDP in 2022-2023 as a result of high oil revenues and the recovery of the non-oil economy.
And he indicated that the rate of public debt is estimated to reach 114 percent of GDP for the year 2020, and will remain above 100 percent during the period 2022-2023, indicating that the government has succeeded in maintaining market access with a total of $ 5.5 billion of bonds and sukuk medium. And long-term rates during 2020 at reasonable prices, with returns ranging between 3.95-7.38 percent, taking into account the non-investment credit rating of Bahrain.
However, the report expected a decrease in funding requirements due to the government’s commitment in accordance with the $ 10 billion aid package from some neighboring countries in the Gulf Cooperation Council in 2018 to strengthen public finances, although the goal of achieving budgetary balance by 2022 is no longer possible.
The report expected that the rise in oil prices would reduce the current account deficit to about 3.8 percent of GDP during the forecast period, compared to 9.6 percent for 2020, with an increase in non-oil exports along with a recovery in the non-oil economy.
He stated that this would help increase the foreign reserves of the Central Bank, which reached two billion dollars (less than 3 months of imports) in December 2020, and the medium-term risks facing the economy are the slow achievement of the economic recovery due to the repercussions of the outbreak of the pandemic, and the insufficient financial reforms to reach a balance. Financial and potential credit rating changes, making the ability to sustain public debt in the medium term more difficult.