BAHRAIN is set to benefit from a surge in oil prices, which hit a three-year high yesterday, experts have said.
Price per barrel climbed above $85 on forecasts of a supply deficit over the next few months spurred by rising demand due to the easing of Covid-19 travel restrictions.
They, however, indicated that the joy could be short-lived and cautioned over a ‘false sense of security’ stressing the need to judiciously use the gains.
Shura Council Economic and Financial Services Committee chairman Khalid Al Maskati said the surge was ‘welcome news’.
Positive
“Our budget is calculated based on oil priced at $50 per barrel while we need $88 per barrel, desirably,” Mr Al Maskati told the GDN.
“Whether we will achieve this in the next two months is something which we will have to wait and see.
“The simple equation is that the price coming to an average of $88 per barrel will balance our budget.”
Oil demand has picked up with the recovery from the Covid-19 pandemic, with a further boost from power generators who have been turning away from expensive gas and coal to fuel oil and diesel.
Brent crude futures settled up 86 cents, or 1pc, at $84.86 a barrel. Front-month prices, which touched their highest level since October 2018 at $85.10, hit a weekly rise of 3pc, its sixth straight weekly gain.
Bahraini economist Jassim Abdulaal also echoed the development as a ‘good sign of recovery’.
“The fair value (of oil) should be around $100 plus per barrel,” he told the GDN.
“However, the price of $85 is a good sign and we hope it remains, as it will have a positive impact on Bahrain’s economy and budget.
“At the same time it could also have side effects on some sectors like aviation, transportation and cargo services which can push the prices of consumables higher.
“We should utilise these gains or extra income judiciously for infrastructure improvement or to pay off debts and reduce deficit.”
Bahrain has undertaken reforms under the Fiscal Balance Programme 2019-22 which looked at ways to narrow the budget deficit by 2022.
The GDN reported last week that Fitch Ratings Agency said a reboot of the programme, including a rise in the Value Added Tax (VAT), could improve the trajectory of the country´s public finances.
Fitch estimates that the VAT increase could raise an additional 1.5pc to 2pc of GDP in revenue. According to the US-based rating agency, if the consumption tax is raised to 10pc and oil averages $60/barrel (bbl), Bahrain is estimated to generate a small primary surplus in 2023, putting debt/GDP ratio on a “mild downward path”.
raji@gdn.com.bh
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