The IMF has urged Manama to continue with economic reforms after concluding a visit to Bahrain.

“Without further measures, non-oil revenue is expected to stagnate and growth to slow,” says Bikas Joshi, who headed the IMF mission to Bahrain.

The Washington-based IMF recommends a range of fiscal measures to increase revenue and reduce expenditure.

“The implementation of VAT, as planned, would be important," says Joshi. "Additional revenue measures, including consideration of a corporate income tax, would be welcome. Consideration should also be given to better targeting subsidies and addressing the large wage bill. Reforms to strengthen the fiscal framework, including by operationalising the debt management office, would be crucial.”

The IMF issued the statement after visiting Bahrain to discuss the 2018 Article IV consultation, a report on which will be submitted to the IMF management and executive board in July.

“Output remained resilient in 2017, growing at around 3.8 per cent," says Joshi. "This was underpinned by the non-hydrocarbon sector, with robust implementation of GCC-funded projects as well as strong activity in the financial, hospitality and education sectors. Overall growth is projected at 3.2 per cent in 2018, with a recovery in oil production, continuation of GCC-funded projects, and rising refinery and aluminum production capacity.”

Public debt

The budget deficit is improving.

“On the back of higher oil prices – increasing hydrocarbon revenues by 15 per cent – and authorities’ fiscal consolidation measures, the overall fiscal deficit is estimated to have declined to 14 per cent of GDP, from around 18 per cent in 2016,” says Joshi. “Announced fiscal policy would reduce somewhat the overall fiscal deficit, to 11 per cent of GDP in 2018. Over the medium term, the deficit is projected to remain sizable, with a rising interest bill as public debt continues to increase.”

Debt is another major challenge for Manama.

“Public debt increased to 89 per cent of GDP, while the current account deficit remained unchanged at 4.5 per cent," says Joshi. "Reserves remain low, covering only 1.5 months of prospective non-oil imports at the end of 2017.”