IMF: Bahrain needs urgent fiscal adjustment

22 Aug 17

Bahrain urgently requires an additional sizable and frontloaded fiscal adjustment to reduce its large fiscal and external financing needs, the International Monetary Fund has said.

It warned in an assessment of the country’s prospects that “sustained fiscal efforts will be needed over the medium term” in order to reduce debt.

Bahrain has suffered from the sharp drop in recent years in oil prices, on which much of its economy depends.

A report to the IMF executive board said Bahrain’s fiscal and external vulnerabilities had risen as the oil price declined.

Its GDP grew by 3.0% in 2016, supported by 3.7% growth in the non-oil sector.

Lower oil prices meant though that the overall fiscal deficit had reached nearly 18% of GDP and government debt rose to 82% of GDP, while the current account deficit widened to 4.7%.

The IMF forecast that real GDP growth would be 2.3% this year and 1.6% in 2018, reflecting fiscal consolidation and weaker investor sentiment.

IMF directors recommended Bahrain should contain current expenditure – including its wage bill – and further reduce energy subsidies, while raising non-oil revenue through an improved revenue administration.

This though would require “a strong communication campaign to explain the authorities’ adjustment plans to strengthen public awareness and support and maintain market confidence”.
 

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