São Paulo – The falling oil price has affected the Bahraini economy, with sluggish Gross Domestic Product (GDP) growth, rising revenues, and a widening debt and fiscal deficit. A report released this Friday (29) by the International Monetary Fund (IMF) states that authorities will need to increase taxes and even freeze wages if the country is to rebalance its finances.
An IMF staff mission stayed in the capital Manama from January 12 to 25. Mission chief Padamja Khandelwal announced the conclusions of the IMF technicians in a press release.
IMF estimates indicate that Bahrain’s GDP was up 3.2% in 2015 and should climb 2.25% this year, or half the 4.5% growth seen in 2014. According to the Fund, the country’s debt amounts to 63% of GDP, with the fiscal deficit tantamount to 15%. Both the debt and the deficit need reducing, according to the Fund.
The local government, Khandelwal remarked, has taken a few measures to correct the economic imbalances. Fuel, water and electricity prices were raised, but it wasn’t enough.
“Despite the implementation of measures, lower projected oil prices in 2016 imply that the overall fiscal deficit will remain high at over 15 percent of GDP, and narrow only gradually over the medium term. A substantial increase in debt is projected. A sizable fiscal adjustment is urgently needed to restore fiscal sustainability, reduce vulnerabilities, and boost investor and consumer confidence,” Khandelwal said.
IMF technicians suggest, among other actions, the levying of a value-added tax on par with those of other Gulf countries and “rationalization” of spending on social transfers.
The Fund’s missions chief noted that the country could cut costs by freezing civil servants’ wages. It also advised the government to support private sector jobs for Bahraini nationals.
*Translated by Gabriel Pomerancblum
