Public debt is expected to increase further over the medium term

IMF highlighted the requirement to ‘introduce direct taxation, including a corporate income tax, while containing the public wage bill and targeting subsidies to the poorest’

Bahrain, which is one of the most unprotected Gulf Arab economies to lower oil prices, confirmed previous month that it was in talks with the UAE, Saudi Arabia and Kuwait for support that would assist in reducing ballooning debt and shore up foreign-exchange reserves.

Bahrain requires a comprehensive package of reforms to minimize its fiscal deficits over the medium term, the IMF stated, as the island kingdom seeks to secure pivotal support from rich neighbours to avoid a currency devaluation.

IMF’s Executive Board stated in a report on Sunday, “Despite planned fiscal consolidation measures, fiscal and external deficits are projected to continue over the medium term, due to the large and growing interest bill.”

It also mentioned, “Public debt is expected to increase further over the medium term and reserves are projected to remain low.”

One of the most vulnerable Gulf Arab economies to lower oil prices, Bahrain, confirmed previous month that it was in talks with Saudi Arabia, the UAE and Kuwait for support that would assist in reducing ballooning debt and shore up foreign-exchange reserves.

The country recruited investment bank Lazard Ltd. to advise on how to repair its strained public finances, people with knowledge of the matter stated earlier this month.

The IMF highlighted the need to “introduce direct taxation, including a corporate income tax, while containing the public wage bill and targeting subsidies to the poorest” and said Bahrain’s exchange rate peg to the dollar “remains appropriate for the economy.”

The IMF stated that it looked forward to the newly established debt management office to develop a contingent financing plan to minimize financing risks and costs.

“Delays in implementing a “credible fiscal plan and changes in market sentiment as global financing conditions tighten present downside risks.”

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