IMF official urges Bahrain to cut debt and spending

• Says Bahrain needs structural reform
• Bahrain’s debt is 130% of GDP
• Downgraded by S&P

The International Monetary Fund is urging Bahrain, the Gulf’s most indebted country, to do more to reduce liabilities, bring government finances under control and spur economic growth.

“It’s a no brainer,” Jihad Azour, IMF Middle East and Central Asia director, said in an interview with AGBI in Dubai. “They need to consolidate; they cannot avoid consolidation.”

The former Lebanese minister of finance said that Bahrain must reduce debt, cut government spending and raise revenue, on the sidelines of an event publicising the IMF’s regional development and economic outlook. 

“They need to try to do structural reform to improve growth,” he said. 

As a share of GDP, Bahrain debt is running at about 130 percent, three times more than Oman, the next highest among the GCC.

Last month, S&P, one of three big agencies, put Bahrain’s already sub-investment grade rating of B+ on a negative outlook, citing a debt burden “which has been higher than anticipated in recent years”.

Bahrain, the smallest Gulf country by population, should emulate Oman, Azour said, “which did this right” and turned around its public finances and debt “very quickly – in a few years”.

However, unlike other Gulf countries, Bahrain – just off Saudi Arabia’s eastern coast to which it is linked by a causeway – enjoys Saudi “guarantees”, Azour said, without going into further details.

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Other Gulf oil producers, meanwhile, including Saudi Arabia, have adequate buffers against the lowest oil prices in four years and heightened global trade tensions, because their economies are more diversified, their debt-to-GDP ratios are relatively low, and their foreign exchange reserves are high, Azour said. They are also able to borrow competitively, he added.

The UAE is probably the most resilient in this respect, because its economy is among the least reliant on oil, Azour said. 

Within the seven-member federation, Abu Dhabi is likely to grow faster than Dubai this year and next, at 4.2 percent and almost 6 percent respectively, versus Dubai’s average 3.4 percent per year over the next two calendar years, Azour said. 

“Abu Dhabi is expanding, recovering in its oil sector and there is massive investment in infrastructure,” he said.