The International Monetary Fund has urged Bahrain to implement financial reforms and reduce public debt, which recorded a sharp increase last year, as the Gulf oil state was affected by the Corona virus crisis.
Bahrain responded quickly to contain the Covid-19 pandemic and launched a widespread vaccination campaign, but the crisis led to an economic contraction of 5.4 percent in 2020 and the non-oil economy shrank by 7 percent.
The IMF said in a statement yesterday evening that the total fiscal deficit in Bahrain increased to 18.2 percent of GDP last year, from 9 percent in 2019, as lower oil prices hurt revenues, while the country’s public debt rose to 133 percent of GDP. Down from 102 percent in the previous year.
Fund officials called on Bahrain to “carry out urgent reforms at the level of public finances to address major imbalances, reduce public debt, and restore the sustainability of macroeconomic conditions, while ensuring that support is directed to the most vulnerable groups.”
In particular, the statement called for “developing an ambitious and credible plan and supporting growth to correct the fiscal conditions and implement them in the medium term, with a focus on mobilizing domestic revenues and rationalizing expenditures.”
Bahrain has accumulated debt at breakneck speed since oil prices plummeted in 2014-2015. A $ 10 billion financial aid program from Gulf countries helped Bahrain avert a credit crisis in 2018.
The IMF expects the Bahraini economy to recover this year with a growth rate of 3.3 percent, and that the overall fiscal deficit will shrink to 9 percent. But he warned that public debt would rise to 155 percent of GDP in 2026, according to his basic scenario.