IMF Executive Board concludes 2023 Article IV Consultations with the Kingdom of Bahrain
July 11, 2023
Washington DC: On July 5, 2023, the International Monetary Fund (IMF) Board concluded its Article IV consultations.
[1]
and the Kingdom of Bahrain.
Bahrain, like other Gulf Cooperation Council countries, experienced strong growth in 2022. Fiscal and external balances improved due to the continued momentum of fiscal reform and soaring oil prices. Her economic growth rate in 2022 was 4.9%. This meant that non-hydrocarbon GDP increased by 6.2%, while hydrocarbon GDP contracted by 1.4%. Non-hydrocarbon growth was led by public, financial and hospitality services and manufacturing. CPI inflation accelerated from an average of -0.6% in 2021 to 3.6% in 2022. With the economic recovery progressing smoothly, fiscal reform underway, and crude oil prices rising, the national fiscal deficit has decreased significantly, shrinking to 1.2% of GDP in 2021. In 2022, the overall budget deficit decreased from 11% to 6.1% of GDP, up from 6.4% in 2021. Government debt decreased from 127.1% of GDP in 2021 to 117.6% of GDP in 2022. The current account balance has improved markedly, recording the largest surplus in decades, increasing from a surplus of 6.6% of GDP in 2021 to an estimated 15.4% of GDP in 2022. The banking system remains resilient with sufficient buffers and has so far withstood the phase-out of coronavirus measures and the tightening of financial conditions.
Growth is expected to slow to 2.7% in 2023, and non-oil GDP is expected to grow by 3.3%, reflecting the underlying effects of fiscal consolidation, higher interest rates, and higher growth in 2022. Growth is then expected to stabilize at around 2.7% over the medium term. Nevertheless, significant uncertainties cloud the forecast, including fluctuations in oil prices, international financial turmoil and ongoing tightening, and a slowing global economy.
The authorities remain strongly committed to the fiscal and structural reform agenda outlined in the Budget Balancing Plan and Economic Recovery Plan, which focuses on reducing budget deficits and public debt, while increasing labor market flexibility, promoting women’s We are promoting diversification efforts, including further improving our workforce. These include workforce participation, strengthening economic digital infrastructure, and addressing the challenges of climate change.
Board evaluation[2]
Executive officers agreed with the purpose of personnel evaluation. They praised Bahrain’s strong post-COVID-19 growth and financial performance, supported by a successful response to the coronavirus, continued reform momentum, and favorable commodity prices. Directors noted that growth is expected to be moderate and risks remain, and stressed the importance of implementing medium-term fiscal adjustment plans, ensuring financial stability, and accelerating structural reforms.
Directors welcomed the authorities’ continued efforts to implement reforms under the Fiscal Balancing Plan (FBP), including progress made to date to strengthen non-hydrocarbon revenue mobilization and continue to contain spending. Leaders agree that executing the current budget in line with FBP targets and continuing ambitious reforms over the medium term is important to ensure fiscal and external sustainability and reduce dependence on oil revenues. he emphasized. Directors also emphasized the importance of integrating fiscal reform into a credible medium-term fiscal framework. Improving debt and fiscal transparency will be important, including gradually reducing extra-budget spending.
Directors agreed that the exchange rate peg continues to serve Bahrain well as a monetary anchor. In this regard, the two leaders emphasized that fiscal consolidation and structural reforms support the external position, while monetary policy should continue to follow the Fed. Directors emphasized the importance of freezing government overdraft accounts at central banks and developing repayment plans. This will lead to an increase in reserves, which in turn will support the external position and peg.
Directors welcomed the successful withdrawal of coronavirus support measures, noting that the banking system remains healthy with sufficient buffers. Leaders stressed that given the headwinds from tight financial conditions, it is warranted to continue to closely monitor financial stability risks and further strengthen the macroprudential framework. In this regard, Directors encouraged further strengthening of the regulatory, supervisory, bank resolution and macroprudential frameworks. The two leaders also welcomed Bahrain’s leading role in the fintech agenda and encouraged it to carefully assess the benefits and risks of introducing a central bank digital currency with the support of Fund CD. did.
Directors welcomed Bahrain’s ambitious structural reform plans. They encouraged authorities to continue improving labor market flexibility and empowering women, and to take advantage of opportunities from regional integration. Advancing climate mitigation through phasing out energy subsidies and further investing in renewable energy could accelerate Bahrain’s climate change without creating additional fiscal demands or squeezing growth. right.
The next Article IV consultations with the Kingdom of Bahrain are expected to be held on a standard 12-month cycle.
Table 1. Bahrain: Key economic indicators, 2019-24
Estimate |
prediction |
|||||
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
|
real sector |
(Annual rate of change) |
|||||
real GDP |
2.2 |
-4.6 |
2.7 |
4.9 |
2.7 |
3.6 |
hydrocarbon |
2.2 |
-0.1 |
-0.3 |
-1.4 |
0.1 |
0.1 |
non-hydrocarbon |
2.2 |
-5.6 |
3.3 |
6.2 |
3.3 |
4.3 |
Consumer price index (period average) |
1.0 |
-2.3 |
-0.6 |
3.6 |
2.2 |
2.2 |
Nominal GDP (million BD) |
14,534 |
13,018 |
14,778 |
16,691 |
16,980 |
17,778 |
finance department |
(% of GDP) |
|||||
revenue |
23.7 |
17.9 |
20.8 |
23.1 |
23.2 |
23.0 |
o/w hydrocarbon revenue |
14.5 |
9.5 |
12.2 |
14.6 |
14.0 |
14.1 |
cost |
28.6 |
30.9 |
27.5 |
26.0 |
25.1 |
24.4 |
expenditure 1 |
32.7 |
35.8 |
31.8 |
29.2 |
28.5 |
27.1 |
Net lending (+) / Net borrowing (-) |
-9.0 |
-17.9 |
-11.0 |
-6.1 |
-5.4 |
-4.1 |
total government debt |
101.6 |
130.1 |
127.1 |
117.6 |
121.1 |
119.9 |
external department |
(US$ 1 billion) |
|||||
export of goods |
18.1 |
14.1 |
22.4 |
30.2 |
25.9 |
27.3 |
Of these: hydrocarbon |
9.9 |
5.9 |
9.9 |
15.1 |
11.7 |
12.5 |
Product import |
17.3 |
14.2 |
17.5 |
21.9 |
20.6 |
22.1 |
Current account balance |
-0.8 |
-3.2 |
2.6 |
6.8 |
3.4 |
3.1 |
Current account balance (ratio to GDP) |
-2.1 |
-9.4 |
6.6 |
15.4 |
7.6 |
6.6 |
Public reserve assets 2 |
3.7 |
2.2 |
4.7 |
4.5 |
6.2 |
8.0 |
Non-oil imports expected for several months |
2.2 |
1.2 |
2.3 |
2.3 |
3.0 |
3.7 |
financial sector |
(Annual rate of change) |
|||||
large sum of money |
11.1 |
6.5 |
4.9 |
3.9 |
6.1 |
4.1 |
exchange rate |
||||||
Real effective exchange rate (rate of change) |
2.2 |
-3.2 |
-4.6 |
4.3 |
… |
… |
Source: Central Bank of Bahrain. Ministry of Finance and National Economy. IMF staff estimates and forecasts. |
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1 Contains statistical discrepancy |
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2 Includes special drawing rights and IMF reserve positions. |
[1]
Under Article 4 of the IMF Articles of Agreement, the IMF typically holds bilateral consultations with member countries annually. A team of staff will visit the country to gather economic and financial information and discuss the country’s economic development and policies with officials. Upon returning to headquarters, the staff will prepare a report, which will form the basis for discussion by the Executive Committee.
[2]
At the end of the discussion, the Executive Director, as Chairman of the Board, summarizes the Executive Director’s opinion and this summary is transmitted to the national authorities. A description of the qualifiers used in summaries can be found at http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
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