Bahrainâ€™s economy continued to outperform expectations in 2017
The Kingdom of Bahrain remains committed to maintaining a fixed exchange rate regime with the US dollar. This policy has provided a strong anchor for monetary policy throughout the years and helped in creating a stable business environment and financial stability. The International Monetary Fund also endorsed this policy in its Article IV review of the economy of Bahrain.
In light of the recent Standard and Poor’s rating of the Kingdom of Bahrain, the Central Bank of Bahrain (CBB) wishes to highlight a number of points.
The Central Bank of Bahrain would also like to point out that the economic growth recorded 3.4 per cent for the first half of 2017 compared to 3.2 per cent in 2016. The Non-oil sector also posted a growth rate of 4.7 per cent in the first half of 2017 compared to four per cent in 2016. This is a remarkable achievement in light of lower oil prices and subdued regional growth, reflecting the effectiveness of the Government’s initiatives in gradually adjusting the fiscal imbalances and the efforts in enhancing the overall legal, investment and business environment. The foreign direct investments also continued to grow reaching $695 million as of October 2017, compared to $280 million in 2016, reflecting the resilience of the economy.
It is also important to note that despite the lower contribution of oil sector in Bahrain’s economy to 20 per cent, oil revenue is still the main source of income in the state budget, which provides continuous foreign exchange revenues that can meet the cost of imports, financial transfers and remittances.
Bahrain’s financial sector has performed well over the years and the recent results of the banking sector reflect its strong liquidity and capitalisation. The capital adequacy ratio of the banking sector reached 19.8 per cent as of September 2017, well above the regulatory requirement. Retail deposits continued to grow reaching $45.1 billion in October 2017, increasing by almost 4.5 per cent compared to the same period in 2016.
Despite the current low oil price, the economy continues to grow with low inflation reflecting the Government’s ongoing initiatives to foster sound fiscal and economic policies. Notwithstanding the rating agency’s action, the economic situation in Bahrain remains robust supported by a strong banking system.