IMF Executive Board Concludes 2022 Article IV Consultation with The Kingdom of Bahrain

New Delhi : On June 24, 2022, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with The Kingdom of Bahrain, and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis [2] .

Bahrain implemented a strong vaccination campaign that covered all residents, was one of the fastest globally, and allowed the broad reopening of the economy in summer 2021. The support package provided relief to the private and banking sectors, helping to contain job losses and corporate strains.

A gradual post-COVID recovery is underway, while the renewed fiscal reform momentum, with the recent doubling of the VAT rate to 10 percent, and high oil prices are mitigating Bahrain’s fiscal and external vulnerabilities. The Bahraini economy grew by 2.2 percent in 2021, driven by 2.8 percent growth in non-hydrocarbon GDP. The recovery was supported by a strong performance in non-hydrocarbon manufacturing as well as by the retail trade and hospitality sectors. With the economic recovery and higher oil prices, the state budget deficit narrowed to 6.8 percent of GDP in 2021, while the overall fiscal deficit narrowed to 11.1 percent of GDP and debt declined slightly to 129 percent of GDP. The current account improved markedly and posted a surplus of 6.7 percent of GDP in 2021 and international reserves increased to about 2.4 months of prospective nonoil imports. Banks’ soundness indicators remain resilient, but the financial sector support package might have masked some vulnerabilities.

Economic activity is projected to continue a moderate rebound and the fiscal and external positions will improve considerably in the near-term. Over the medium-term, growth is set to stabilize at 3 percent. However, declining oil prices will put pressure on the medium-term fiscal deficit and public debt is projected at 127 percent of GDP by 2027. Significant uncertainty clouds the forecast, including from the uncertain evolution of the pandemic, and the war in Ukraine, as well as the global inflation outlook.

The authorities are strongly committed to their reform agenda outlined in the Economic Recovery Plan and the revised Fiscal Balance Program, including ambitious reforms to reduce the fiscal deficit and public debt.

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