DUBAI (Reuters) – Bahrain’s economic recovery from the COVID-19 pandemic will be gradual, with growth projected at 3.3% this year after a 5.4% contraction in 2020, the International Monetary Fund said on Sunday.
The tiny Gulf state has been battered by the twin shocks of the coronavirus crisis and lower oil prices, which pushed its overall fiscal deficit to 18.2% of gross domestic product last year from a 9% shortfall in 2019, the Fund said.
Bahrain has accumulated a large pile of debt since the 2014-2015 oil price shock. A $10 billion financial aid programme from Gulf allies helped it avoid a credit crunch in 2018.
Public debt rose to 133% of GDP last year from 102% in 2019, the IMF said.
“Once the recovery firms, ambitious and growth-friendly fiscal adjustment set within a credible medium-term framework is needed to address Bahrain’s large imbalances, put government debt on a firm downward path, and restore macroeconomic sustainability,” the Fund said in a statement.
“The adjustment would also help rebuild external buffers, solidify the exchange rate peg, which continues to serve Bahrain well as a monetary policy anchor, and support access to sustainable external financing.”
The IMF said Bahrain had moved swiftly to address the health and economic impacts of the COVID-19 pandemic, providing rapid access to vaccinations to those most in need and liquidity to businesses hit hard by lockdown restrictions.
The projected 3.3% growth this year reflects an expected 3.9% recovery in the non-oil sector, boosted by widespread vaccine distribution.
The IMF also welcomed the central bank’s support for banks, but warned about emerging credit risks amid weakened growth.
“Reducing the role of government as an employer could also help create a more dynamic and attractive private sector and alleviate fiscal pressures,” it said.
Reporting by Davide Barbuscia; Editing by Pravin Char