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DUBAI, July 11 (Reuters) - Bahrain's economy shrank on an annual basis in the first quarter of 2018 for the first time in at least seven years, hit by a fall in oil production, data from the official statistics agency showed on Wednesday.
The figures may increase concern about the health of Bahrain's economy as it struggles with a current account gap and a large state budget deficit, which have dragged down prices of its international bonds and pushed the Bahraini dinar to a 17-year low against the U.S. dollar late last month.
The dinar then partly recovered after Saudi Arabia, the United Arab Emirates and Kuwait said they would soon announce an assistance program to support the country's fiscal stability and economic reforms.
But the first-quarter data underlines the challenges that Bahrain faces as it tries to grow its economy and state revenues out of trouble. Gross domestic product, adjusted for inflation, shrank 1.2 percent from a year earlier and declined 0.5 percent from the previous quarter.
This was largely because the oil sector of the economy shrank 14.7 percent from a year earlier. Bahrain lacks the ample oil reserves of its neighbors and though it announced in April that it had made its biggest oil discovery in decades, it is not clear how much of the oil can be extracted commercially.
Meanwhile, the non-oil sector of the economy expanded a modest 1.9 percent from a year earlier in the first quarter. The manufacturing and construction sectors grew on the back of rising aluminum exports and infrastructure projects partly funded with aid from Bahrain's neighbors.
But the financial sector, excluding insurance, shrank and the hotels and restaurants sector declined sharply. (Reporting by Andrew Torchia; Editing by Mark Potter)