DUBAI: The International Monetary Fund has cut its forecast for economic growth in unrest-hit Bahrain to 3.1 percent in 2011 from an earlier projection of 4.5 percent, according to a report released Wednesday.
The forecast in the IMF's Regional Economic Outlook contrasted with a much more optimistic official projection last month, which said the tiny kingdom's economy would still grow at 4.5 percent.
Oil receipts, combined with expanded government spending boosted by aid from neighbouring Gulf countries, are expected to prop up the economy, despite disruption caused by unrest, according to the head of the IMF's Middle East and Central Asia Department, Masood Ahmed.
"We feel that there are some factors keeping growth rates relatively high," he told AFP.
"The oil sector is an important part of the Bahraini economy, and particularly for government revenues. It continues to be unaffected and that is a source of stability," Ahmed said.
Bahrain is the smallest oil producer in the Gulf region with an output of 40,000 barrels per day. However, oil accounts for 60 percent of exports and a similar percentage of government revenues.
Ahmed also pointed to additional spending earmarked by the government and support from neighbouring oil-rich Gulf countries as helping growth.
"On the other side, the economic disruptions themselves, as a result of the unrest, will be a negative," he said, adding that they are expected to push economic activity "down in the short run."
He said it was too early to estimate economic losses due to disruption and continued uncertainty after a police crackdown on pro-democracy demonstrations staged by the Shiite majority of the kingdom ruled by a Sunni dynasty.
"It is a bit premature for us to take a view on what the final impact is going to be," he said, adding that the IMF plans to send in a research team once the situation settled.
"Then, we will be able to have a firmer view of both the near-term outlook and the prospects for Bahrain," he said.
Finance Minister Sheikh Ahmad bin Mohammad al-Khalifa said last month the economy was set to grow by 4.5 percent this year. In 2010, the economy grew by 4.1 percent, according to the IMF.
He said Gulf aid for Bahrain would increase "financial appropriations for current and future projects in the kingdom over the next 10 years" and help create "additional job opportunities in different sectors."
On March 10, the six-member Gulf Cooperation Council 10 decided to establish a $20-billion-fund (13.7 billion euros) to finance development projects in Bahrain and Oman, both of which have been rocked by protests calling for reform.
Protests in Bahrain calling for democratic reforms broke out on February 14, until Bahraini security forces carried out a bloody crackdown on demonstrators on the streets on March 16.
The kingdom's reputation for business-friendly stability has taken a beating, with ratings agencies Fitch and Standard & Poor's downgrading Bahrain's debt ratings.
Life in the business and financial district of Manama, home to major banks, financial institutions and hotels was brought to a complete halt for a week by the demonstrators.
Following the crackdown, business remained crippled as tanks guarded vital institutions and police maintained checkpoints across the country in a continued clampdown on dissidents.
Financial services make up 25 percent of Bahrain's economic output.
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