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Robust economy ‘led by strong banking system’

Bahrain Business
Sun, 03 Dec 2017

MANAMA: Bahrain’s economy is robust – supported by a strong banking system, declared the Central Bank of Bahrain (CBB) yesterday.

The economy outperformed expectations this year, despite lower oil prices and subdued regional growth, it said.

The central bank was responding to Standard and Poor’s Global Ratings lowering Bahrain’s long-term foreign and local currency sovereign credit ratings to ‘B+’ from “BB-’.

The ratings agency said the downgrade reflected Bahrain’s weak external liquidity and increasing financial risk due to more limited access to international capital market financing.

“In light of the recent Standard and Poor’s rating of Bahrain, the CBB wishes to state that Bahrain remains committed to maintaining a fixed exchange rate regime with the US dollar,” said a CBB statement.

“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.”

The CBB statement pointed out that overall economic growth in Bahrain posted an annual rate of 3.4 per cent for the first half of the year, which was an improvement on 3.2pc growth posted during last year.

The non-oil sector also posted a growth rate of 4.7pc in the first half of 2017 compared to 4pc in 2016.

“This is a remarkable achievement in light of lower oil prices and subdued regional growth,” said the CBB.

“This reflected 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 $280m in 2016.

“This reflects the resilience of the economy.

“It is also important to note that despite the lower contribution of the oil sector in Bahrain’s economy to 20pc, 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.

The CBB said 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 19.8pc as of September 2017, well above the regulatory requirement.

“Retail deposits continued to grow, reaching $45.1 billion in October 2017, increasing by almost 4.5pc 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.”

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