Economic growth is expected to moderate over the forecast period. Real GDP growth projections have been revised down to 1.7% in 2018 and 2.1% in 2019, as low oil prices weigh on domestic demand and market uncertainties prevent the economy from performing at its full potential. However, project spending is foreseen to increase thanks to multilateral and private sector commitments. In addition, oil GDP is expected to expand again over the forecast horizon once the OPEC+ (an alliance of OPEC and non-OPEC producers) deal terminates at the end of 2018 and the new 350,000 barrels per day (bpd) offshore oil pipeline connecting to Saudi Arabia is completed.
Key elements of the social contract — public employment and subsidies — are unaffordable in this context. And a key component of Saudi Arabia Vision 2030 — the liberalization of the entertainment sector — will undermine Bahrain’s appeal as a weekend destination for Saudis. Meanwhile, Brexit is likely to intensify competition among international financial centers. Some combination of more radical structural reform (which will need more political consensus than exists at present) and explicit GCC financial support is likely to be needed.
Despite recently enacted austerity measures, Bahrain remains the most vulnerable Gulf country in the face of lower oil and commodity prices due to its limited savings and sharply rising debt levels, leaving it exposed to financing risks.