IMF forecasts Bahrain will have moderate growth and higher public debt

Bahrain’s economy will experience lower growth and higher public debts, the IMF said in a statement issued last week following the annual Article IV consultation with the kingdom.

The IMF called on the Bahrain government to counter higher government indebtedness by targeting subsidies to lower-income people and controlling the growth of current spending

The IMF said that Bahrain’s GDP grew 5.3 per cent in 2013. There was a rebound in the hydrocarbons sector but non-oil activity growth slowed to 3 per cent due to weak investment sentiment and the delay in approving the 2013/14 budget.

Other features of the IMF report include:

  • the budget deficit rose again in 2003, but by a lower amount than budgeted due to underspending of the capital budget. The overall deficit is estimated at 4.3 per cent of GDP compared with 3.2 per cent in 2012. The IMF estimates the fiscal breakeven oil price increased to $125 a barrel in 2013 from $119 a barrel in 2012
  • government debt increased by eight percentage points to 44 per cent of GDP
  • the current account surplus in 2013 was estimated at 7.8 per cent of GDP. Official reserves coverage fell from about 10 months of imports in 2012 to nine in 2013
  • the banking sector is in good health, and the performance of Islamic retail banks has improved. The capitalisation of the banking system is high on average and nonperforming loans to gross loans have continued on a downward trajectory.

“The economic outlook is characterised by moderate growth and higher public debt, with average annual inflation projected to be subdued in 2014 and over the medium term,” the IMF said. “The most immediate policy challenges are to correct the fiscal imbalances and stabilise government debt, while balancing growth and debt sustainability considerations. Over the longer term, the challenge is to reduce fiscal dependence on oil revenues and resume robust economic growth.”

The report said the IMF board of directors supported the authorities’ objective of achieving sustainable and inclusive growth, which is the focus of Bahrain Economic Vision 2030. The directors recommended preserving public capital spending, enhancing the business climate to promote private sector investment and removing bottlenecks in the economy. The implementation of GCC-funded projects should also be accelerated.

Bahrain: key economic indicators 2010-13

                                 2010     2011     2012    2013E

GDP ($000m)            25.7       29.0     30.7       32.8

CPI (%)                       2.0       -0.4        2.8         3.3

Current account ($bn) 0.8         3.2        2.2         2.6

Source: IMF, 19 June 2014