Bahrain’s economy will grow by 2.6 per cent in 2009, according to the latest IMF Article IV report on the country.

The economy will slow down sharply compared with 2007 and 2008, when the IMF put growth at 8.1 per cent and 6.1 per cent respectively.

The IMF also recommended that Bahrain introduces value added tax and corporate income tax to help diversify the government’s income.

The report said Bahrain’s financial sector, which makes up about 25 per cent of the economy, had so far “withstood the global turbulence, reflecting in part the strength of sovereign shareholders.”

It added that despite the damage to bank balance sheets from the financial crisis, “the CBB [Central Bank of Bahrain] has not had to take drastic action to shore up retail banks, mainly because parent banks and shareholders have provided support to buttress solvency and liquidity.”