The International Monetary Fund (IMF) Executive Board has completed its 2024 Article IV consultation with the Kingdom of Bahrain, noting economic growth amid challenging conditions. Bahrain's real GDP increased by 3 percent in 2023, while inflation decreased to 0.1 percent from 3.6 percent in 2022. Despite these gains, the fiscal balance deteriorated to -8.5 percent of GDP, and government debt rose to 123 percent of GDP.
Looking ahead, the IMF projects that Bahrain's growth will remain steady at 3 percent in 2024 and rise to 3.5 percent in 2025, driven by refinery upgrades and private sector investment. Inflation is expected to increase slightly to 1.2 percent in 2024.
Bahrain's authorities have expressed commitment to continuing fiscal reforms beyond their current Fiscal Balance Program (FBP) to reduce government debt over the medium term. They aim to diversify the economy further, increase private sector employment, and enhance female labor force participation.
The IMF Executive Directors commended Bahrain for its resilience and growth but emphasized the need for a well-designed fiscal adjustment plan combined with structural reforms to ensure financial stability and external sustainability. They encouraged Bahrain to broaden its VAT base, introduce corporate income tax, contain wage bills, and reform energy subsidies.
Directors also supported maintaining the exchange rate peg as a monetary anchor and recommended discontinuing government overdrafts at the central bank to bolster reserves and support the peg's credibility.
Bahrain's banking system remains sound and well-capitalized. The IMF urged continued monitoring of financial stability risks and improvements in regulatory frameworks for non-bank financial intermediaries.
The next Article IV consultation with Bahrain is scheduled for a standard annual cycle.