Bahrain is benefiting from the $10 billion (Dh36.7bn) aid pledged by the Arabian Gulf neighbours last year, which has alleviated the kingdom's financing needs, the International Monetary Fund said.
In 2018, the smallest Gulf economy approved a Fiscal Balance Programme, which aims to eliminate its fiscal deficit by 2022, and complement the aid package from the UAE, Kuwait and Saudi Arabia. The country received the first tranche of the aid money, officials said last month, but did not disclose the amount.
“The authorities’ Fiscal Balance Programme, underpinned by the 2019-20 budget, has provided a commendable framework to arrest the decline in fiscal and external buffers since 2014,” Bikas Joshi, IMF mission chief to Bahrain, said on Tuesday. “The measures envisaged under the FBP are expected to further reduce the fiscal deficit over the medium term, but public debt will continue to increase.”
Bahrain needs to contain its fiscal deficit, which fell to 11.7 per cent of gross domestic product in 2018, according to the IMF. Its public debt stands at 93 per cent of GDP, the highest among the Gulf countries.
The island kingdom plans to tap the global capital markets to help fund its fiscal reform plan in addition to the Gulf aid, the country's Finance Minister, Sheikh Salman bin Khalifa Al Khalifa, said in February.
The fiscal plan outlines six key initiatives, including reducing government operational and administrative expenditure, and raising revenues through subsidy reductions and the 5 per cent VAT that came into force on January 1. It also includes other measures to boost small and medium-sized enterprises and incentivise private-sector expansion.
Despite the progress, the IMF said more reforms are needed by the kingdom.
“Additional reform efforts, anchored in a more transparent medium-term agenda, will be needed to ensure fiscal sustainability and support the currency peg, which continues to provide a clear and credible monetary anchor,” the fund said. “Further revenue measures, including a direct taxation system such as corporate income tax, could be considered and spending reforms should be designed to protect the most vulnerable.”
The international lender expects the country's economic growth to remain at 1.8 per cent this year.