IMF says slowing Bahrain economy needs direct taxation

17 July 2018
Public debt has increased to 89 per cent of GDP and reserves covering only 1.5 months of non-oil imports at end of 2017

Washington-based IMF expects economic growth in Bahrain to decelerate and says that reforms, including direct taxation, are needed to reduce fiscal deficits over the medium term.

The comments were made after the IMF concluded its Article IV consultation with the kingdom. In a statement after its visit the fund said that public debt has increased to 89 per cent of GDP, with large fiscal and external current deficits persisting. It added that reserves remain low, covering only one-and-a-half months of prospective non-oil imports at the end of 2017.

While the IMF welcomed Bahrain’s commitment to continue subsidy reforms, cut non-productive spending, and raise non-oil revenues by introducing a value added tax by 2019, it said additional steps are needed. These include direct taxation, including a corporate income tax, while containing the public wage bill and targeting subsidies to the poorest.

While growth is expected to continue decelerating, output grew by 3.8 per cent in 2017. That was underpinned by a resilient non-hydrocarbon sector, the robust implementation of GCC-funded projects as well as strong activity in the financial, hospitality, and education sectors.

Saudi Arabia, Kuwait and the UAE are preparing to announce an integrated programme to enhance Bahrain’s fiscal situation, a statement carried by the Saudi Press Agency (SPA) said on 26 June.

No details were provided as to the nature or value of the planned intervention.

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