Bahrain’s economy grew by slightly more than 3 per cent in 2009, according to Finance Minister Sheikh Ahmed bin Mohammed al-Khalifa.

Sheikh Ahmed predicted that economic recovery in 2010 would be “modest and patchy” but that the sound fundamentals that have made the GCC an attractive market for project finance in the past remain in place. He was speaking at MEED’s Middle East Project Finance 2010 conference in Bahrain on 16 February.

He added that Bahrain was keen to capitalise on current low construction costs by investing in new infrastructure projects. 

“Given the recent decline in the price of construction materials such as steel and cement, this is a particularly opportune time for us to engage in some essential infrastructure development work,” he said.

Bahrain, in line with other GCC countries, is expected to run a budget deficit this year to compensate for the decline in private sector activity. It has been borrowing from international markets to fund its investments in infrastructure and other projects.    

In June 2009, Bahrain issued an Islamic bond (sukuk) of $750m, although demand from investors for the issue was as high as $4bn. The initial size of the sukuk offering was $500m, but was increased due to the high level of demand.

Sheikh Ahmed also highlighted the important role that Islamic finance can play in the local project finance market.

“A further source of strength for Bahrain’s financial sector has been our position as a hub for Islamic finance,” he said.

“There are enormous opportunities for sharia-compliant finance to take up some of the slack created by problems in the conventional financial industry. The sukuk market in particular is one that we believe provides a flexible mechanism for project and infrastructure finance.”