By hosting a Formula 1 race in 2012, the Bahraini government was angling for attention on two fronts, positive publicity and economic benefit. Instead, they received mainly critical attention driven by human rights activism and popular outrage. Much less attention came when the International Monetary Fund (IMF) published its annual economic assessment known to market watchers as the infamous ‘Article IV’ report. The report’s top line was that Bahrain suffered a slowdown of its economic growth of some 1.8 percent in 2011.
Looking back on the past ten years (assuming the IMF got its estimates right) GDP performance was the poorest in more than a decade, with a full four-percentage-points discrepancy from the past 10-year averages.
But on questions whether the slowdown was a symptom or side effect of change, a mere fallout of the protests, or a result of other global and regional pressures, the IMF was decidedly ambiguous. On the one hand, the IMF said that “disruptions caused by protest activity during the first half of 2011 have weighed on growth.” On the other, the “macroeconomic impact of the unrest has been cushioned by the largely unaffected oil and aluminum sectors.” It did not say which factor had a greater impact but it did point out that the oil sector contributes over 85 percent to Bahrain’s fiscal and external receipts.
And while it takes more than a few protests to stop the flow of oil, the kingdom is being stretched thin. The IMF also observed that Bahrain’s fiscal stance had been expansionary to the point that the break-even price of oil for sustaining state expenditures had reached $114, versus $80 in 2008, the highest break-even price for oil in the GCC back when prices were even higher than today.
Yet one need only dig a little bit into the files to find that the IMF knows well that protests have changed the economic situation significantly. In a press statement released at the end of a two-week IMF visit for consultations in December 2010, David Robinson, the IMF official leading the delegation at the time, said: “Buoyed by the rebound in oil prices, the continuing recovery in the global economy, and fiscal stimulus, growth is expected to accelerate from the 3 percent recorded in 2009 to 4 percent in 2010 and further to 5 percent in 2011.” We all know what happened one month later. But you wouldn't think the IMF did if you looked at their recommendations.
In the September 2009 Article IV, the IMF’s Executive Board “emphasized that the key challenges faced by authorities are to safeguard financial stability and mitigate the impact of the global downturn on the domestic economy.”
In the 2012 consultations, the IMF described the impact of the euro crisis on the Bahraini financial sector as “further deleveraging of the wholesale banking sector.” It also added that its “principal impact on the domestic economy has been the associated loss of employment in the financial sector, as contagion to the conventional retail banks appears to have been contained.” Nothing on addressing the problems causing unrest.
The debates in Bahrain over economic justice and social equity included, among many other things, the discussion of whether the 2012 Formula 1 event was so economically beneficial to the people that the demonstrations were ill-placed. The activists argue that the protests at the race were justified because of human rights violations and the need to attract global attention. Neither side could substantiate their argument with economic data, which would strengthen their claims of having the better way toward improving people’s lives.
Yet, if the government of Bahrain, or any stakeholder in the state or economy, were to look for an assessment of measures — such as the 15 percent increase of salaries for all public sector employees in August 2011 — that is conducive to lowering social inequality, they would not get answers from this year's assessment by the IMF’s Executive Board either. It concluded, “policies should be geared to restoring confidence in the economy, including by finding a lasting resolution to the social unrest, promoting growth, and securing a sustainable fiscal position.” We know, IMF, but how?