## IMF Staff Completes 2018 Article IV Mission to Bahrain

_IMF News, May 30, 2018_

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## Bibliographic details
- Published: May 30, 2018

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### Mission summary and timeline
- Mission led by Mr. Bikas Joshi visited Manama from April 30–May 15, 2018 to conduct discussions for the 2018 Article IV consultation.
- The mission will submit a report to IMF management and Executive Board, which is tentatively scheduled to discuss the Article IV Consultation in July 2018.
- Statement issued at conclusion of the visit by Mr. Joshi.

### Recent economic performance and near-term outlook
- Output in 2017:
  - Grew at around 3.8 percent.
  - Growth underpinned by the non-hydrocarbon sector, with robust implementation of GCC-funded projects and strong activity in the financial, hospitality, and education sectors.
  - Inflation remains subdued.
- Hydrocarbon revenues:
  - Increased by 15 percent on the back of higher oil prices.
- 2018 projection:
  - Overall growth is projected at 3.2 percent in 2018, with a recovery in oil production, continuation of GCC-funded projects, and rising refinery and aluminum production capacity.
- Risks without further measures:
  - Non-oil revenue is expected to stagnate and growth to slow.

### Fiscal position, debt, and recommendations
- Fiscal outcomes and public debt (as presented):
  - Overall fiscal deficit estimated to have declined to 14 percent of GDP in 2017, from around 18 percent in 2016.
  - Public debt increased to 89 percent of GDP.
  - Announced fiscal policy would reduce somewhat the overall fiscal deficit, to 11 percent 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.
- Urgent policy message:
  - A credibly large policy package—comprising both revenue and expenditure measures, while protecting the most vulnerable—is urgently needed.
  - A credibly large fiscal adjustment is a priority.
- Specific recommended measures:
  - Implement the planned value-added tax.
  - Consider additional revenue measures—including consideration of a corporate income tax.
  - Better target subsidies and address the large wage bill.
  - Reforms to strengthen the fiscal framework, including by operationalizing the debt management office, would be crucial.

### External position and reserves
- Current account and reserves:
  - Current account deficit remained unchanged at 4.5 percent.
  - Reserves remain low, covering only 1.5 months of prospective non-oil imports at end 2017.
- Macro anchor:
  - Fiscal consolidation would support the peg to the U.S. dollar, which continues to provide a clear and credible policy anchor.

### Financial sector and fintech
- Banking sector stability:
  - Bahraini financial sector remains stable, thanks to large capital buffers.
  - The banking system remains well capitalized and liquid.
- Supervision and fintech:
  - Continued efforts to strengthen the regulation and supervision of the financial sector would further bolster the system.
  - Fintech presents opportunities for Bahrain, where global experience can be brought to bear in addressing possible risks.

### Structural reforms and diversification
- Importance of reforms:
  - Especially given fiscal constraints, sustained structural reforms remain key to supporting growth and diversification.
- Recommended reforms:
  - Legal reforms to streamline regulations should reduce costs of doing business and catalyze private investment.
  - Improving access to financing for small and medium enterprises.
  - Further reforming the labor market to help diversify the economy and make the non-hydrocarbon sector more resilient.
- Expected benefits:
  - Continued efforts to improve the business climate should help economic diversification and create jobs.

### Closing remarks from the mission
- The IMF team greatly appreciated the candid discussions with the Bahrain authorities and their hospitality and excellent cooperation.

*IMF Staff Completes 2018 Article IV Mission to Bahrain, May 30, 2018.*

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## References

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_Source: https://www.imf.org/en/news/articles/2018/05/30/pr18201-imf-staff-completes-2018-article-iv-mission-to-bahrain_