An International Monetary Fund (IMF) mission led by Mr. Bikas Joshi visited
Manama from February 19–March 3, 2019 to conduct discussions for the 2019
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 April 2019.
At the conclusion of the visit, Mr. Joshi issued the following statement:
“Economic activity was subdued in 2018. Oil output is expected to have
declined by 1.2 percent, while non-oil output growth decelerated to 2.5
percent, driven by slowdowns in retail, hospitality, and financial services
sectors. Continued implementation of GCC-funded projects has supported
growth in the construction sector. Overall growth in 2018 is estimated at
1.8 percent, with inflation edging up to 2.1 percent, mainly driven by
higher food and transport prices. With higher oil prices, the reduction in
utility subsidies, and the new excise taxes, the overall deficit in 2018
fell to 11.7 percent of GDP, from 14.2 percent in 2017. Public debt
increased to 93 percent of GDP. The current account deficit widened to 5.8
percent, while reserves remained low, covering only about one month of
prospective non-oil imports at end 2018.
“Economic growth is anticipated to remain around 1.8 percent in 2019. The
authorities’ Fiscal Balance Program, underpinned by the 2019-20 budget, has
provided a commendable framework to arrest the decline in fiscal and
external buffers since 2014. The introduction of a value-added tax in
January 2019 is a particularly significant step, as are plans for cost
recovery in utilities and further means-tested subsidy reforms. 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.
“Thus, 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. 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
implementation of the Voluntary Retirement Scheme (VRS) is expected to
reduce the public wage bill over the medium term. The ultimate impact on
public service delivery and public finances should be carefully assessed
based on public sector restructuring plans and contingent liabilities of
the VRS.
“The banking system remains stable. Ongoing efforts at supervisory and
regulatory vigilance, and to further enhance the AML/CFT framework, are
welcome. Bahrain has been a leader in fintech, promoting opportunities
while revising regulations and collaborating with other regulators.
“Sustained structural reforms would help support inclusive growth and
further economic diversification. This requires developing a dynamic
private sector, while transforming the role of the government without
sacrificing necessary public services. Targeted education and labor market
reforms would help promote opportunities and improve productivity. Efforts
to place greater emphasis on vocational education and retraining are
welcome, particularly as technology is rapidly changing the nature of work.
Reforms to streamline regulations should further improve efficiency and
catalyze private investment. Improving access to financing for small and
medium enterprises would invigorate further the private sector’s
contribution to the overall economy.
“The IMF team greatly appreciated the candid discussions with the Bahrain
authorities and their hospitality and cooperation.”
