IMF urges Bahrain to tackle rising government debt

The International Monetary Fund has advised Bahrain about its rising government debt, urging the kingdom to adopt fiscal measures.

After discussions with officials in the capital Manama between November 9 and 20, IMF staff said Bahrain's fiscal position had “continued to deteriorate last year". The fund said the kingdom's overall fiscal deficit to gross domestic product rose 11 per cent, with gross government debt to GDP increasing to more than 11 per cent.

The fund said inflation rose only modestly last year, while growth was resilient, amid tight financing conditions and geopolitical uncertainty. However, it advised that the kingdom's debt-to-GDP ratio is expected to increase further if new fiscal measures are not put in place.

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“To bring debt down durably and reduce risks, the priority is to commit to a steady, multiyear fiscal consolidation package, with efforts appropriately staggered to smooth the adjustment, alongside structural reforms to boost growth,” IMF mission chief John Bluedorn said.

The fund called on Bahrain to adopt measures including the introduction of a general corporate income tax and reducing broad energy subsidies, while using social transfers to protect vulnerable households. The IMF said this would help to balance growth and fiscal sustainability.

The IMF said its mission will submit a report to the fund's executive board, which is scheduled to discuss the Article IV consultation in January.

S&P downgrade

The statement comes days after S&P Global Ratings downgraded Bahrain's sovereign credit rating from “B+” to “B” on its fiscal position and rising debt levels. S&P said Bahrain's outlook was stable.

“The downgrade reflects our view of the risks related to high government debt that has accumulated because of persistently pressured fiscal positions and high fiscal deficits,” S&P analysts said.

S&P said Bahrain's economy and budgets remains susceptible to volatility in oil prices, “despite hydrocarbons representing only 15 per cent of GDP”. It forecast Bahrain's government debt to reach 139 per cent of GDP in 2028, up from 118 per cent last year.

Fitch Ratings also lowered Bahrain's economic outlook from stable to negative this year on fiscal pressures and rising debt.

Bahrain went to the bond market this year to help refinance debt. S&P said it expects the kingdom to continue to rise on softer oil market dynamics and fiscal deficits.