Interview: Jean-Christophe Durand
With the government deficit currently around 15% of GDP, how do you see Bahrain’s fiscal situation evolving over the next few years?
JEAN-CHRISTOPHE DURAND: Given the outlook of low oil prices in the medium-term, fiscal deficit will continue to be a challenge for the government. Bahrain has taken several measures to ease the financial burden, such as lifting subsidies, cutting costs and increasing fees for government services. Value-added tax is also likely to be introduced from around 2018 onward. All of these measures will serve to reduce the pressure on government finances to a great extent.
Additionally, the Government Forum 2016 re-emphasised key priorities to meet Economic Vision 2030, with a focus on boosting performance and productivity, and engaging actively with the private sector for national development – particularly in tourism, logistics, manufacturing and ICT. These initiatives will result in robust economic growth in the medium-term and will positively impact the government’s financial position. I agree there are significant challenges in the short-term on the fiscal front, and the deficit will remain at an elevated level in the short-term.
How does Bahrain capitalise on its expertise in banking and Islamic finance?
DURAND: Bahrain has the reputation of being the most investor-friendly country in the region, with a transparent business environment. The laws and legislation in Bahrain are on par with global standards, but the most encouraging thing is the constant endeavour to enhance existing laws to be in sync with the pace of growth across different sectors of the economy. This is a distinct advantage that Bahrain enjoys today and I believe this is going to hold us in good stead for the future.
Moreover, Bahrain’s pool of highly skilled workers is one of its most competitive advantages. The laws and regulations, experience and expertise gained over 40 years, the pool of skilled manpower available and the general friendliness towards foreign investment mean that Bahrain holds an advantage over other financial centres in the region. Compared to other countries in the area, the cost of running a business is relatively low. Bahrain is also the gateway to the northern Gulf, with particularly strong access to the region’s largest economy, Saudi Arabia.
Despite the challenging climate, is there optimism in lending to large Bahraini entities?
DURAND: The decrease in oil prices requires a change of approach when it comes to funding projects of national importance. The government can seek support from domestic banks in financing many of the projects, thereby relieving itself of that burden. At the same time, this will allow the government to make progress towards Economic Vision 2030 by encouraging the active participation of the private sector. These projects have been initiated by the government to meet the growth requirements of the national economy over the long-term. They are well conceived and self-funding in terms of cash flow; hence banks have an interest in participating in these projects.
Bahraini banks have always played a significant role in the development of the domestic economy, having the required liquidity and capital strength to support national projects. NBB has always been a major player in large project financing in the kingdom, most recently as a financial advisor for Alba’s line six expansion along with two other leading institutions. The bank was a lead arranger of the Mumtalakat Holding Company bond syndication last year in addition to participating in the syndicated financing for nogaholding. NBB has a very strong capital base, a capital adequacy ratio in excess of 30% and the required liquidity. Hence we are possibly in the best position to play a great role in the economic growth of Bahrain, and that is our number one business objective.
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