Bahrain, Oman & Qatar Outlook

Economic growth in Bahrain, Oman, and Qatar is forecast to mostly improve in 2026, lifted by looser monetary policy and sustained government reform drives. A softer oil price environment will weigh on Bahrain’s fiscal accounts, with the deficit on a widening path despite consolidation efforts. Meanwhile, Oman’s successful reform rollout continues to improve its economic prospects with non-oil growth accelerating. In Qatar, the outlook remains robust with solid non-hydrocarbon sector growth rates and imminent, albeit slightly delayed, inauguration of LNG expansion plants. 

Bahrain: Growth decent, but wide fiscal deficits on the horizon

Bahrain’s economy is projected to see further decent growth in 2026, though fiscal pressures continue to cloud the outlook. The non-oil sector should lead the way with growth of a respectable 3.3% and 3.1% in 2025 and 2026, respectively, reflecting the ongoing diversification push, robust service-sector activity, and lower interest rates. Meanwhile, after six years of contraction, oil output is set to steady in 2026 as energy market conditions stabilize. After averaging only 0.3% in 2025, inflation is set to pick up to (a still mild) 1.7% in 2026 alongside firmer economic momentum and continued monetary policy easing. 

Softer hydrocarbon prices are set to pressure the fiscal and external accounts. The budget deficit, despite consolidation efforts, is seen widening to 7.7% of GDP in 2025 and to 8.5% in 2026, pushing gross public debt to approximately 135% of GDP by end-2026. Meanwhile on the external front, the current account surplus is expected to narrow to 3.4% of GDP in 2025 and 1.6% in 2026, while foreign reserves remain low at just over one month of imports. These vulnerabilities highlight the urgency of structural reforms to improve resilience, especially to contain the worsening debt trajectory and ballooning debt-servicing costs. Nonetheless, Bahrain is expected to rely – if needed – on renewed financial support from key GCC partners, as seen in previous events, to sustain external buffers and preserve the long-standing peg.

Oman: Solid growth momentum continues on back of reforms 

Oman’s economic activity is expected to gain further momentum over the forecast period, with GDP growth rising to 3.2% in 2025 and 4.0% in 2026, led by steady non-hydrocarbon sector growth (3% on average) and a fast-expanding hydrocarbon sector (2.0% and 5.4% in 2025 and 2026, respectively). Construction, manufacturing, trade, and tourism will increasingly drive activity in the former, while the latter will benefit from higher oil production as OPEC+ continues to unwind members’ supply cuts. Inflation will remain subdued, increasing gradually to 1.3% in 2026 (0.9% in 2025), supported by the currency peg and stable food and energy prices. 

Lower oil prices will weigh on the fiscal and external positions. The fiscal balance will likely shift from a small surplus in 2024 (1.3% of GDP) to a deficit of 1.6% by 2026. However, fiscal discipline and reform momentum – along with the repayment of debt during the oil windfall years – have strengthened macro stability and lowered public debt to around 34% of GDP in mid-2025 and earned Oman an investment-grade rating upgrade in 2024. The expected higher financing requirement and moderate nominal GDP growth, though, could see public debt (excluding GRE debt) rise in 2026 to 37.5% of GDP. Foreign reserves are adequate ($18.5bn), covering nearly four months of imports. 

Hydrocarbon dependency and regional geopolitics are still vulnerabilities, but increasingly mitigated by Oman’s successful reform rollout, which has enhanced its resilience and bolstered the non-oil growth outlook. The newly introduced 10-year Golden Residency program aims to attract long-term investors and skilled professionals, while the planned 5% personal income tax on high-income residents from 2028 – the first in the GCC – will diversify revenues and improve fiscal sustainability.  

Qatar: Reform push enhances non-hydrocarbon outlook 

GDP growth is forecast to rise from 2.7% in 2025 to 3.2% in 2026. The non-hydrocarbon sector will spearhead the expansion, growing by 3.7% in 2026 from 3.5% in 2025 with gains especially in trade and services. Tourism stands out, with visitor arrivals and hotel occupancy rates increasing year-on-year, leveraging the country’s FIFA World Cup and events pedigree. The outlook is supported by investment and reform momentum under the Third National Development Strategy (NDS3), which aims to shift economic growth from the public to the private sector by developing clusters in manufacturing, logistics, and tourism, alongside the LNG expansion plan with positive spillovers. Falling borrowing costs amid monetary easing should also lift consumption and credit demand. Meanwhile, we hold a conservative estimate for hydrocarbon sector growth (2.2% in 2026) due to slower LNG train rollout from the North Field East Expansion project, expected in H2 2026. LNG capacity will rise significantly after that, increasing by 63% to 127 mtpa by 2028. Inflation will average just 0.4% in 2025 amid deflation in housing rentals and transportation, accelerating to a still-contained 1.4% in 2026.      

Higher expenditures and lower energy receipts should see the public finances slip into a modest deficit in 2025-2026 of less than 1% of GDP. This will likely be short-lived as gas production ramps up in 2027, bringing sizeable volumetric gains to LNG exports. Public debt will continue trending lower (to 38.4% in 2026), supported by robust nominal GDP growth. Risks to the outlook include lower energy prices, reflecting a potential global economic downturn, and regional geopolitical hostilities (which materialized for a while in 2025 during the Hamas-Israel war albeit with limited economic impact for Qatar on that occasion). Large sovereign assets, NDS reforms, and a strong track record on project delivery bolster resilience and strengthen the outlook.

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