Bahrain is going to stay put on its initial target of lowering dependence on hydrocarbons despite the recovery in crude oil prices.
According to Simon Galpin, Managing Director of Bahrain Economic Development Board, the current price of crude oil incentivises the push towards the Economic Vision 2030 for Bahrain.
“In some respect, the level at which oil prices are now means that it is giving an even more incentive, impetus and momentum to take forward that vision. So it is now much urgent for us to increasingly diversify, not just from oil and gas, but to really focus more on the digital economy,” Galpin told BusinessLine.
“So actually in some respect, things like these are a blessing in disguise to maintain the momentum and to really achieve a lot of the soft infrastructure.
“The regulatory reform, for example, has been implemented because there was a sense of urgency. One advantage we have here is that we started this process when oil prices were actually quite high. And because Bahrain is running out of oil, so we had to do it. So we have a bit of a head start in that,” he added.
According to the Vision, the government had aimed to reduce dependence on oil revenues for funding recurrent expenditure from 2008.
Additional revenue sources
The Vision said that this will be achieved by generating additional sources of revenue and cutting inefficient spending. It said, “Bahrain will strengthen the non-oil GDP growth of recent years. This growth will come from diversified economic activity.
“Our financial sector will remain our economic engine, but will be increasingly complemented by growth in other high-potential sectors.” Galpin said, “Less than 20 per cent of our country’s Gross Domestic Product today comes from oil and gas. So, the fact that oil prices are the way they are, gives us more impetus.”
But the Bahrain’s economy has been far from the pink of health, struggling with a high fiscal deficit and dwindling state revenues. According to the recent World Bank — Bahrain’s Economic Outlook, Bahrain’s economy continued to be negatively affected by the lower hydrocarbon prices.
“Bahrain maintained an expansionary fiscal stance since 2009 resulting in general government deficits. The situation worsened in 2016 with a decline in oil revenues by 10 per cent and an overall fiscal deficit estimated at 13 per cent of GDP (up from 12.8 per cent in 2015). The deficit spending helped maintain economic growth at 3 per cent, but brought reserves down to a concerning low level at 1.2 months of imports and increased public debt to 65 per cent of GDP,” the outlook said.
In response to a query on the same, Galpin said, “I cannot comment on that specifically since that is something more for the Ministry of Finance to answer. But, as you will learn, the government will do quite a bit to try and balance it. The introduction of a 5 per cent Value Added Tax by the end of the year and the reduction of subsidies is a step in that direction. We also have to look at efficiency and how we can do more with less in the public sector, but perhaps where we have the biggest role to play is in encouraging the growth of the private sector.”