Manama: Economies of Bahrain and the GCC region may be nearing the zone of discomfort but are far from the danger zone, leading economists have said.

According to Bahrain-based economist Dr Akbar Jaffari, who also runs a consultancy called Jafcon, said there was no cause for alarm here as such.

He was reacting to a global stock markets plunge led by a near nine per cent dive in China shares and a sharp drop in the dollar and prices of major commodities.

Dr Jaffari said as the Bahraini dinar, like other regional curriencies except the Kuwaiti dinar, was pegged to the US dollar, any appreciation or depreciation in the greenback would have a proportional effect. 

“We enjoyed the good times when the dollar was appreciating and oil prices were rising and now the cycle has turned and we have to face this.”

He did not expect the dollar depreciation to increase inflation and said on the contrary that there were signs the global economy might be heading for deflation.

According to him, the low oil prices and bearish stock markets were here to stay and fiscal pressures on GCC economies were mounting.

However, Dr Jaffari said he thought this would lead to expediting much-needed reforms like removal of wasteful subsidies and cost rationalisation, to offset the impact of lower revenues flows from oil and gas exports.

The Bahrain government has announced the removal of meat subsidies and an eventual phase out of subsidies on fuel, electricity and water, except for Bahrainis, was also on the cards, he said.

Dropping oil prices have also accelerated the need to broaden and strengthen non-oil revenues, and Bahrain is an example of diversification in the GCC.

An assessment by the Economic Development Board (EDB), which says the non-oil sector constitutes more than 80 per cent of Bahrain’s gross domestic product (GDP) last month, showed the country’s non-oil economy outdid growth projections, expanding by five per cent in the first quarter this year.

The kingdom saw broad-based real GDP growth of 2.9pc, and strong labour market activity, with employment increasing by 5pc compared with the same period last year, the EDB said.

Concurring with Dr Jaffari, energy expert and researcher Leheb Abdul Wahab said he expects global fuel prices to continue to tumble for at least another six months as Iranian oil comes into the market.

He questioned the timing of the lifting of sanctions on a country with one of the world’s largest proven oil reserves.

According to him there was an oversupply of around two million barrels of oil and with China’s economy slowing down, the demand was set to stay depressed.

Dr Abdul Wahab said the sharp drop in global markets, US dollar value and oil price yesterday was due more to concerns about China and not so much about oil market fundamentals.

“Saudi Arabia, the world’s biggest producer of oil, has changed its strategy and is looking to squeeze our high-cost rivals such as US shale producers by steadfastly refusing to rein in output,” he said.

“The Opec member is trying to win the battle for market share.”

avinash@gdn.com.bh