Washington, DC:
An International Monetary Fund (IMF) mission led by Ms. Asmaa El-Ganainy
visited Manama from May 8–22, 2022 to conduct discussions for the 2022
Article IV consultation. The mission will submit a report to IMF management
and Executive Board, which is scheduled to discuss the Article IV
Consultation in June.
At the conclusion of the visit, Ms. El-Ganainy issued the following
statement:
“Bahrain implemented a commendable pandemic policy response, which
successfully mitigated the health and economic impact of the COVID-19
crisis. The strong vaccination campaign 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 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 while hydrocarbon GDP
contracted by -0.3 percent. The recovery was supported by a strong
performance in non-hydrocarbon manufacturing as well as by the retail trade
and hospitality sectors. CPI inflation remained negative at -0.6 percent on
average in 2021. 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, from -17.9 percent
of GDP in 2020. Government debt declined slightly to 129 percent of GDP in
2021 from 130 percent of GDP in 2020. The current account improved markedly
and posted a surplus of 6.7 percent of GDP in 2021, after a deficit of -9.3
percent of GDP in 2020.
“Growth is projected to accelerate to 3.4 percent in 2022, with non-oil GDP
increasing by 4 percent driven by stronger manufacturing and the full
reopening of the economy. Thereafter, growth is projected to stabilize at
around 3 percent over the medium term. Nevertheless, 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.
“The current oil price outlook provides an opportunity to proceed with
ambitious reforms under favorable macroeconomic and financing conditions
and deliver a sizeable medium-term fiscal consolidation that reduces
reliance on oil revenue and puts debt on a firm downward path. A stronger
fiscal position would also promote the growth of foreign exchange reserves
to continue supporting the exchange rate peg, which remains an appropriate
monetary anchor.
“The financial sector support package cushioned the impact of the pandemic
on the real economy but might have masked some vulnerabilities in the
banking sector. Phasing out financial sector pandemic support measures
would contain the buildup of vulnerabilities and reduce financial stability
risks. Continued support of fintech and digitalization could provide a
source of growth that needs to be balanced against possible risks.
“Targeted labor market policies would help the recovery and provide
employment opportunities for Bahrainis. Staff welcomed the authorities’
revamped strategy to address labor market challenges, as detailed in the
recently introduced National Employment Program. Continuing to address
skills mismatches and boosting labor market mobility could improve
productivity. Finally, incentivizing access to finance for women
entrepreneurs and promoting the use of digital solutions to boost work
flexibility could further improve women’s labor force participation.
“ The IMF mission team wishes to express its appreciation to the Bahraini
authorities for their cooperation, hospitality, and engaging
discussions
.”
IMF COVID-19 Hub
Policy Tracker
Financial Assistance
Questions & Answers
