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| 02 May, 2018

Bahrain needs to accelerate budget reforms to sustain economy –IMF official

Bahrain is rated as "junk" by all the major credit rating agencies and lacks the financial and oil reserves of its wealthier Gulf neighbours.

Image used for illustrative purpose.
Bahrain currency.

Image used for illustrative purpose. Bahrain currency.

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DUBAI - Bahrain needs to accelerate reforms to its state budget to reach a deficit level that would make its finances sustainable over the medium term, an International Monetary Fund official said.

Jihad Azour, director of the IMF’s Middle East and Central Asia department, was speaking after yields on Bahrain's international bonds jumped during a debt sale at the end of March because of investor concern about the country's finances.

Bahrain is rated as "junk" by all the major credit rating agencies and lacks the financial and oil reserves of its wealthier Gulf neighbours. It has been hit harder than them by a reduction in its export revenues due to low oil prices.

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“Given the fact that Bahrain doesn’t have the same levels of buffers as other countries, they need to accelerate their fiscal adjustment in order to reduce faster their deficit and to tackle a level of debt that is higher than other countries,” Azour said in an interview.

Bahraini officials have indicated they are likely to impose a value-added tax in 2019 to strengthen state finances. The tax had originally been planned for introduction in January this year, at the same time as VAT was imposed in Saudi Arabia and the United Arab Emirates, but the plan ran into resistance from some members of parliament.

“I think they’re expecting it to be introduced in 2019 -- this is a right measure,” said Azour.

Earlier this year, the minister of finance said Bahrain had no new plans to cut the subsidies it pays to keep down consumer prices of fuel, food and services.

Azour said that to curb state spending, it was important for Bahrain to continue removing its subsidy system gradually, allowing utility prices to be fixed with a new formula.

He said faster structural reforms of the economy were also needed to boost growth, which the IMF has forecast will stay largely flat at around 3 percent in the next couple of years.

Bahrain has been discussing the possibility of obtaining additional financial aid from Kuwait, Saudi Arabia and the United Arab Emirates, bankers and officials in the Gulf say.

Asked if additional aid from Gulf neighbours was necessary for Bahrain to reach financial stability, Azour said the right policy mix would allow the country to become more resilient and strengthen public finances.

(Editing by Andrew Torchia and Catherine Evans) ((Davide.Barbuscia@thomsonreuters.com; +971522604297; Reuters Messaging: davide.barbuscia.reuters.com@reuters.net))