Economy

Bahrain’s growth to slow in 2023, says IMF

By Pramod Kumar

May 25, 2023, 5:24 AM

The golden licence is part of an economic recovery plan launched in October 2021 to boost growth and job opportunities

IMf predicts Bahrain’s growth to fall to 2.7% in 2023
Non-oil growth slightly higher at 3.2%
Bahrain’s banking system remains resilient

Bahrain’s growth is projected to moderate to 2.7 percent in 2023, with non-oil GDP growing by 3.2 percent, reflecting fiscal consolidation and higher interest rates, the International Monetary Fund (IMF) said in a new report.

The economy grew by 4.9 percent in 2022, driven by a 6.2 percent growth in non-hydrocarbon GDP. However, hydrocarbon GDP contracted by 1.4 percent last year.

Growth is expected to stabilise at around 2.7 percent over the medium term, the IMF said, adding that significant uncertainty clouds the forecast, including oil price volatility, international financial turmoil and ongoing tightening, and a slowdown in global growth.

“The authorities remain strongly committed to their reform agenda outlined in the economic recovery plan,” the report said.

“The 2023/24 budget is guided by the fiscal balance program targets, which focus on reducing the fiscal deficit and public debt.”

Fiscal consolidation should continue beyond 2024 with ambitious and growth-friendly reforms to reduce reliance on oil revenue and put debt on a firm downward path.

The report added that a stronger fiscal position will also enhance FX reserve accumulation, thereby supporting the exchange rate peg, which remains an appropriate monetary anchor.

The IMF said that the banking system remains resilient with ample buffers and has so far withstood the phasing out of Covid measures and tightening financial conditions.

“Bank soundness remained strong through Q1 2023. Nevertheless, vigilance to financial stability risks is warranted given headwinds, including tightening financial conditions and lingering effects from the withdrawal of Covid measures.

“Formalising the macroprudential and resolution frameworks will help cement financial stability further,” the report noted.

Finally, gradually phasing out energy subsidies to increase fiscal space for renewable energy investment will help move toward Bahrain’s emission reduction goals and support its energy transition without creating additional fiscal needs.

Bahrain experienced strong growth in 2022, in line with other GCC countries amid continued fiscal reform momentum and high oil prices driving fiscal and external balances, the IMF said.

In addition, government debt declined to 117 percent of GDP in 2022 from 126 percent of GDP in 2021.

The current account improved markedly and posted its largest surplus in decades, estimated at 15.4 percent of GDP in 2022, up from 6.6 percent of GDP surplus in 2021.