IMF Staff Completes 2024 Article IV Mission to The Kingdom of Bahrain

IMF News, October 16, 2024

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IMF mission led by Mr. John Bluedorn visited Manama during September 29–October 10, 2024 to conduct discussions for the 2024 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 November.
The views expressed are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

Growth remained resilient in 2023 despite tight financial conditions, heightened geopolitical uncertainty, and tensions in the broader region.
Real GDP grew at 3 percent in 2023.
Growth is anticipated to remain at 3 percent in 2024 and rise to 3.5 percent in 2025, with completion of refinery upgrades in the manufacturing sector and a pick-up in private sector credit growth supporting greater private investment.
Over the medium-term, real GDP is expected to grow at around 3 percent, driven by nonhydrocarbon GDP, which is expected to grow to account for about 90 percent of the economy by 2029.
CPI inflation fell to 0.1 percent in 2023.
CPI inflation is projected to rise to 1.2 percent in 2024, before steadily converging to 2 percent over the medium term.

The fiscal position declined in 2023:
- Overall fiscal balance to GDP fell by 3.3 percentage points to –8.5 percent.
- Gross government debt to GDP increased by 12 percentage points to 123 percent.
This fiscal deterioration marked a change from improvements in 2021 and 2022 under the revised Fiscal Balance Program (FBP), when Bahrain recorded rises in the overall primary balance of about 6 percentage points of GDP on average per year.
The ratio of nonhydrocarbon revenues to primary recurrent expenditures (excluding extrabudgetary spending) remained at its FBP target of about 40 percent in 2023.
Policy priority: a multi-year and pre-committed fiscal consolidation and reform package to put government debt to GDP onto a durable downward path.
Recent policy: introduction of the domestic minimum top-up tax under the OECD/G20 Inclusive Framework is welcomed.
Recommended additional fiscal efforts (appropriately staggered to smooth the adjustment):
- Raising nonhydrocarbon revenue.
- Rationalizing current spending.
- Reducing subsidies while increasing social transfers to protect the vulnerable and supporting investment.
The recommended package aims to balance growth and equity considerations and fiscal sustainability.

The current account stayed in surplus at 5.9 percent of GDP in 2023, but down from its peak in the previous year.
Anticipated easing of monetary conditions will mitigate the growth impact from fiscal adjustment and support the build-up of external buffers.

The Central Bank of Bahrain should continue to closely follow the U.S. Federal Reserve in changes to its policy stance.
Financial stability has been well-maintained; recommendations to further strengthen the framework include:
- Formalizing and implementing a bank resolution framework to build on a tradition of sound financial sector supervision and regulation and help safeguard financial stability.
- Further developing the local currency bond market and the non-bank financial sector.
- Closely monitoring interconnectedness between banks and non-banks to promote greater financial market deepening and diversification of financing sources for the broader economy.

Economic diversification has progressed well, but additional reforms would foster higher, greener, and more inclusive medium-term growth.
Recommended policies to boost inclusion and productivity:
- Expanding well-designed programs to enhance human capital and close identified skill gaps.
- Improving small and medium-sized enterprises’ access to finance.
- Harnessing the digital transformation.
Raising growth through these measures would hasten the decline in the debt-to-GDP ratio and ease the fiscal adjustment.
Energy and climate-related recommendation:
- Gradually reducing energy subsidies while increasing renewable energy investments to bolster emission reduction goals and ensure a smooth energy transition.

The recent implementation of the National Summary Data Page (NSDP), one of the key recommendations of the IMF’s enhanced General Data Dissemination Standards (e-GDDS), is a welcome change and a testament to Bahrain’s commitment to improving data quality and transparency.
The aim is to subscribe to the Special Data Dissemination Standard (SDDS) in the near future.
Such enhancements will help national decision-makers and domestic and international stakeholders improve their monitoring of macroeconomic and financial developments in Bahrain.

The IMF mission team expressed appreciation to the Bahraini authorities for their cooperation, hospitality, and engaging and helpful discussions.

IMF Staff Completes 2024 Article IV Mission to The Kingdom of Bahrain — Press Release No. 24/376 (October 16, 2024).