São Paulo – Government spending and a rebound in some sectors have driven Bahrain’s economy to grow by 4.8% in 2012 and achieve its best result since 2008. Still, the Gulf country faces a major challenge in the short run: reduce government debt, which may be as much as 61% of the GDP as early as 2018, and can potentially lead to an “unsustainable” economic situation. These are some of the conclusions of Bahrain’s economic assessment issued by the International Monetary Fund (IMF) last Wednesday evening (15th).
“Despite commendable efforts by the MoF to raise non-oil fiscal revenues through fee increases and other measures, halting the fiscal deterioration and putting government debt on a sustainable path will depend critically on the adoption of measures that have high fiscal saving potential; there is now an urgent need to initiate a medium-term fiscal strategy with a view to adopt a gradual retargeting of subsidies, contain public-sector wage increases, increase non-oil revenues, rationalize capital expenditures, and place the pension fund on a sustainable path,” according to the IMF.
The Fund warns that the country must implement fiscal adjustments to prevent government debt from exceeding 40% of the GDP, which was US$ 27.1 billion in 2012, according to IMF estimates. According to the Fund, Bahrain’s economy grew in 2012 due to increased public spending and the resumption of growth in the industry and the hotel and insurance sectors. Other segments, such as banking, construction and retail also grew, albeit more modestly.
The country’s non-oil GDP was up 6.6% in 2012, according to IMF estimates, after having grown by 1.9% in 2011. The oil sector’s GDP was down 8.5% from 2011 due to a disruption at the Abu Saa’fa oil field, which only returned to operating normally near the end of the year.
In the long run, the IMF advises on Bahrain to invest in education and professional training, promote reforms to lure in private investment and job creation, to include female labour force training, diversify its industry, improve the business climate, and use foreign direct investment in order to spread technology.
*Translated by Gabriel Pomerancblum
