## IMF Staff Completes 2019 Article IV Mission to Bahrain

_IMF News, March 5, 2019_

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**Canonical URL:** [IMF Staff Completes 2019 Article IV Mission to Bahrain](https://www.imf.org/en/news/articles/2019/03/05/pr1965-bahrain-imf-staff-completes-2019-article-iv-mission)

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## Bibliographic details
- Published: March 5, 2019

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### Mission and procedural context
- An 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.
- End-of-Mission press releases convey preliminary findings; the views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
- The Fiscal Balance Program (FBP), accompanied by $10 billion in regional support, marks a major step in Bahrain’s reform agenda and has alleviated near-term financing constraints.

### Economic performance and outlook
- Economic activity was subdued in 2018.
- Oil output is expected to have declined by 1.2 percent.
- 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.
- Inflation edged up to 2.1 percent, mainly driven by higher food and transport prices.
- Economic growth is anticipated to remain around 1.8 percent in 2019.

### Fiscal and external sector developments
- 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.
- Reserves remained low, covering only about one month of prospective non-oil imports at end 2018.
- 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.

### Policy findings and recommendations
- Supplementary measures beyond the FBP would ensure a sustainable position and reduce vulnerabilities over the medium term.
- Additional reform efforts, anchored in a more transparent medium-term agenda, will be needed to ensure fiscal sustainability and support the currency peg.
- Further revenue measures, including a direct taxation system such as corporate income tax, could be considered.
- 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.

### Financial sector, governance, and structural reforms
- 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.

### IMF team concluding remark
- “The IMF team greatly appreciated the candid discussions with the Bahrain authorities and their hospitality and cooperation.”

*IMF Staff Completes 2019 Article IV Mission to Bahrain — Press Release No. 19/65*

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## References

- [Kingdom of Bahrain and the IMF](http://www.imf.org/external/country/BHR/index.htm)
- [Kuwait and the IMF](http://www.imf.org/external/country/KWT/index.htm)
- [Oman and the IMF](http://www.imf.org/external/country/OMN/index.htm)
- [Qatar and the IMF](http://www.imf.org/external/country/QAT/index.htm)
- [Saudi Arabia and the IMF](http://www.imf.org/external/country/SAU/index.htm)
- [United Arab Emirates and the IMF](http://www.imf.org/external/country/ARE/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
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_Source: https://www.imf.org/en/news/articles/2019/03/05/pr1965-bahrain-imf-staff-completes-2019-article-iv-mission_