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MANAMA: Bahrain is set to benefit from the impact of higher oil prices on its budget this year, with less pressure to introduce new taxes and cut spending further in the near term, say experts.
The non-Opec producer has prepared a national budget for 2021-2022 projecting revenues of BD2.406 billion this year and BD2.457bn next year based on an oil price of $50 per barrel, up from $45/b in the draft budget.
Emirates NBD yesterday revised its Brent oil forecast up to $67.5 per barrel following the surprise decision by Opec+ to keep production largely unchanged in April.
As a corollary, GCC oil production estimates for this year has been revised downwards, with some of the expected 2021 increase in oil production now pushed into 2022.
The bank’s head of research and chief economist Khatija Haque said this means that average oil prices for GCC oil exporters will be 56 per cent higher than in 2020, more than offsetting even the deepest production cuts in the region.
As a result, GCC budget deficits are set to narrow sharply this year, assuming spending remains unchanged and governments continue to prioritise deficit reduction over boosting growth.
Private bank Julius Baer too has raised its forecast and now sees oil prices moving well above $70 per barrel over the coming months.
The bank’s head economics and next generation research Norbert Rücker said oil use in the western world, which still accounts for the lion’s share of demand, will be lifted by demand topping supplies, storage shrinking and the coming months seeing a bounce in leisure and travel activity.
“With supplies constrained more decisively, we see more upside in the near term and lift our quarterly forecasts for the remainder of 2021 by $5 per barrel,” he said.
However, Emirates NBD warned the decision to apparently target higher oil prices rather than gradually increase oil production this year will weigh on GCC GDP growth.
The Dubai government-owned bank said it had expected oil production in 2021 to be lower than in 2020, but the delay in increasing production means the contraction in oil sector GDP this year will be bigger than it had previously anticipated, weighing on overall headline GDP growth.
On the other hand, it expects oil sector growth in 2022 to likely be faster than previously expected, boosting headline growth rates for next year.
The International Monetary Fund is projecting Bahrain’s economy to grow at 3.3 per cent this year and around 3pc over the medium term, as the result of a gradual post-pandemic recovery in the country.
The outlook reflects a recovery in non-oil growth to 3.9pc in 2021 as widespread vaccine distribution boosts activity towards pre-crisis levels. The government budget for 2021-2022 estimates Bahrain’s oilfield producing 46,000 and 43,000 barrels per day for 2021 and 2022, respectively, whereas the Abu Saafa Oilfield, which the country shares with Saudi Arabia, is expected to produce 150,000 barrels daily.
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