Consequences of the corona crisis and future planning.
Strategy Optimization Consultancy
Raja Yousif Al-Zayani
6th June 2020
The world currently confronts the most significant historical threat in nearly a century. The coronavirus continues to claim countless lives and strain healthcare systems to the point of collapse. Its impact has extended beyond the realm of public health, causing an unprecedented economic crisis that may surpass the ramifications of the 1929 Great Depression.
This crisis is unique in that it simultaneously affects both the supply and demand sides of the economy. Factories have shut down, production has ground to a halt, supply chains have been disrupted, and urbanization, driven by caution and fear, has led to a sharp decrease in consumption – the primary driver of production. Imports and exports have dwindled due to closures, interruptions in transportation, travel restrictions, and border closures.
To gain a clearer understanding of the future and offer a preliminary scenario for addressing the potential effects of the coronavirus on Bahraini society, let’s first provide an overview of some economic and financial indicators from the pre-COVID-19 era. Subsequently, we’ll propose some key macro-level considerations to guide decision-makers in long-term reform and change efforts.
According to the economic report released by the Ministry of Finance and National Economy, the Bahraini economy’s growth rate reached 1.8% in 2019, lagging behind the UAE’s 2.9% but surpassing Saudi Arabia’s meager 0.3%. The International Monetary Fund (IMF) anticipates a contraction of -3.6% in the Bahraini economy in 2020, influenced by the decline in numerous production and service sectors, including tourism, hospitality, real estate, commercial activities, transportation, and shipping. These effects will translate into reduced local and foreign investments, increased unemployment, lower wages, reduced government revenues, and heightened debt levels.
Regarding the state’s public finances, the government had made progress in recent years, with the total fiscal deficit as a percentage of GDP decreasing from 6.3% to 4.7% in 2018 and 2019. However, given the substantial pressures imposed by COVID-19, the drop in global demand for oil (the primary revenue source), low oil prices, economic slowdown, and the government’s sizable relief measures, estimated at 4 billion Bahraini dinars for critical sectors such as healthcare, the private sector, and the labor market, the fiscal deficit is projected to soar to approximately 15% of GDP, according to IMF estimates. This represents a substantial deficit that jeopardizes the hard-earned progress toward achieving fiscal balance by 2022.
Given these realities and statistics, decision-makers find themselves facing daunting choices. The crisis affects nearly every sector, and while reshuffling priorities is crucial for mitigating immediate repercussions, it is insufficient for achieving sustainable economic recovery. A sustainable return to economic stability necessitates a reevaluation of national plans and strategies, along with a comprehensive strategic analysis of the current situation, with a focus on pressing strategic issues and the risks and threats unveiled by the pandemic.
Several key strategic issues serve as starting points for a more extensive and deeper dialogue among policymakers:
1. Food Security: The pandemic underscores the importance of self-reliance in food production. Food security encompasses factors such as food cost, availability, safety, and the necessary supply chains for production in agriculture, fishing, and livestock. Exploiting the opportunities in this sector is essential for addressing this strategic challenge.
2. Pharmaceutical Security: COVID-19 highlights the need for self-sufficiency in pharmaceutical manufacturing to ensure comprehensive health security. Encouraging local production of medicines and medical supplies can mitigate risks.
3. E-Learning and Remote Work: The pandemic has revolutionized education and work. Institutions must evaluate their experiences with remote learning and work and invest in technology, infrastructure, and research to adapt to this new reality.
4. Economy and Business: Economic sectors are grappling with losses due to reduced consumer demand. Government policies that restore confidence and stimulate household consumption are crucial for revitalizing the economy. Addressing fiscal deficits, government spending efficiency, private sector partnerships, unemployment, and financial sustainability is essential.
In conclusion, crafting a new roadmap that preserves achievements and anticipates the future is an urgent necessity. It calls for comprehensive dialogue involving stakeholders to address the aforementioned strategic issues, alongside critical concerns related to the environment, energy, water, and other vital areas.