Bahrain Mirror: The International Monetary fund (IMF) expected on Sunday (July 15, 2018) that Bahrain's growth is to decelerate over the medium term due to the large and growing debt bill. IMF said that reserves remain low, covering only 1.5 months of prospective non-oil imports at end 2017.

It added in a report about the article IV consultation with the Kingdom of Bahrain that fiscal and external deficits are projected to continue over the medium term, despite planned fiscal consolidation measures.

However, it said that that output grew by 3.8 percent in 2017, underpinned by a resilient non-hydrocarbon sector, with robust implementation of GCC-funded projects as well as strong activity in the financial, hospitality, and education sectors.

The banking system remains stable with large capital buffers. Meanwhile, the government is committed to continue subsidy reforms, cut non‑productive spending, and raise non‑oil revenues (...).

The report indicated that the increase in debt may limit the government's ability to support the banks in the crisis.

Executive Directors welcomed the resilience of growth in Bahrain, while noting downside risks to the outlook stemming from the rise in fiscal and external vulnerabilities, tighter global financing conditions, delays in fiscal adjustment, and lower energy prices.

IMF directors welcomed the Bahraini authorities' commitment to continue subsidy reforms, cut non‑productive spending, and raise non‑oil revenues by introducing a value‑added tax by 2019. However, they considered that additional steps are needed to put public finances on a sustainable trajectory, striking the right balance between revenue and expenditure measures while protecting the most vulnerable.

The International Monetary fund said that the country needs economic reforms to increase the budget deficit, emphasizing the need to introduce direct taxation, including a corporate income tax, while containing the public wage bill and targeting subsidies to the poorest.

The executive directors in the IMF said that they looked forward to the newly established debt management office developing a contingent financing strategy to mitigate financing risks and costs.

They also encouraged the authorities to strengthen their macro‑fiscal framework and increase fiscal transparency and accountability, securing public support and awareness, and enhancing market confidence.

They saw that delays in implementing a credible fiscal plan and changes in market sentiment as global financing conditions tighten present downside risks to the baseline.

They underscored the importance of fiscal adjustment in supporting the peg and rebuilding international reserves, and ensuring external sustainability. In this context, directors recommended gradually unwinding central bank lending to the government.

Directors emphasized the need to develop a well‑defined emergency liquidity assistance framework, deepen the interbank market, and enhance the supervision of Islamic banks and insurance companies.

They welcomed Bahrain's initiatives to promote fintech, while underscoring the importance of monitoring risks.

Directors called for further structural reforms to boost productivity and competitiveness through more privatization plans and public‑private partnerships, and measures to strengthen the education system and support greater female labor force participation.

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