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Manama faces tricky terrain

22 November 2023

Commentary
John Bambridge
Analysis editor

Manama’s diplomats have been sharply reminded of the axiom that the only constant is change – as developments in Israel-Palestine have thrown the country’s diplomatic course of the last few years way off. 

The year began with a far more manageable diplomatic challenge: reconciling with Qatar. In mid-April, Doha and Manama agreed to restore full diplomatic relations. Yet the intra-GCC rift has been revealed as a geopolitical minnow alongside the events in Israel-Palestine since 7 October.

Israel’s disproportionate response in Gaza prompted Bahrain’s Council of Representatives to announce the suspension of economic ties and ambassadorial exchange with Israel on 2 November. 

This reaction from Bahrain’s legislative body has been influenced by the rising public outrage over events. In Manama, as in many Arab capitals, this anger has spilt over into street protests and pressured Bahrain’s elected parliamentarians to act. Even so, there are few examples of political rebuttals to Israel’s actions set in starker relief than Bahrain’s – as one of the four Abraham Accords signatories.

From a domestic perspective, the fraying regional situation is an unwelcome distraction from Bahrain’s most pressing concern, which remains the country’s precarious fiscal position. Manama continues to walk a delicate tightrope between its spending needs and budget imbalance, which demands a level of austerity that the Bahraini government is loathe to impose. 

While Bahrain’s deficit has shrunk to an estimated 5 per cent of GDP in 2023, it falls short of Manama’s stated targets. The government said in June that it wanted to see a deficit of just 1 per cent by 2024. 

Despite the supportive influence of the Opec+ oil production cuts on crude prices, this increase alone has not been enough to offset the drop in production. Government revenues remain far from where Manama needs them to be to balance its books through oil receipts alone. 

On the flip side of its austerity, Bahrain risks underspending on capital-intensive critical infrastructure projects. 

Bahrain’s projects market has declined since the major $4.2bn Sitra Refinery upgrade in 2017. Every year, more value has left the market than has been added, and spending in the past two years has been well below average. 

This is not due to a lack of prospects. Carbon capture schemes, clean energy projects and the King Fahd Causeway all wait in the wings. Manama’s challenge is to weather external events and implement these big-ticket schemes.

MEED’s December 2023 special report on Bahrain includes: 

> GOVERNMENT & ECONOMY: Foreign policy issues cloud Bahrain’s horizon
> BANKING: Bahrain banks have cause for cheer
> OIL & GAS: Bahrain charts pathway to net-zero future
> POWER & WATER: Bahrain takes renewables strides
> CONSTRUCTION: Bahrain waits for major infrastructure projects
> BUSAITEEN LINK: Bahrain tenders signature bridge
> CAUSEWAY: Qatar and Bahrain agree on causeway revival
> DATABANK: Growth holds as fiscal pressure eases

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John Bambridge

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