IMF urges Bahrain to implement fiscal reforms, contain rising public debt
DUBAI, March 23 (Reuters) - The International Monetary Fund (IMF) urged Bahrain to implement fiscal reforms and lower its public debt, which increased sharply last year as the coronavirus crisis hurt the small oil-producing Gulf state.
Bahrain responded quickly to contain the COVID-19 pandemic and has launched a widespread vaccination campaign, but the crisis led to a 5.4% economic contraction in 2020, with the non-oil economy shrinking by 7%.
The country's overall fiscal deficit increased to 18.2% of gross domestic product (GDP) last year from 9% in 2019 as lower oil prices hurt revenues, while public debt rose to 133% of GDP from 102% a year earlier, the IMF said in a statement late on Monday.
IMF officials "called for urgent fiscal reforms to address the large imbalances, lower public debt, and restore macroeconomic sustainability, while ensuring targeted support to the most vulnerable," said the statement.
"In particular, they called for an ambitious, credible and growth-friendly fiscal adjustment plan to be implemented over the medium-term, focusing on domestic revenue mobilization and expenditure rationalization."
Bahrain has accumulated debt at a breakneck speed since the 2014-2015 decline in oil prices. A $10 billion financial aid programme from Gulf allies helped it avoid a credit crunch in 2018.
The financial assistance was linked to a set of fiscal reforms, that Bahrain said this month it remained committed to.
The IMF expects the economy to rebound this year, with growth of 3.3%, and expects the overall fiscal deficit to shrink to 9%. But it warned that, in its baseline scenario, Bahrain's public debt is set to increase further to 155% of GDP by 2026.
"Risks to the baseline are tilted to the downside and stem from insufficient fiscal adjustment to contain the twin deficit, a tightening in global financial conditions or further declines in oil prices," it said. (Reporting by Davide Barbuscia; Editing by Ana Nicolaci da Costa)