An International Monetary Fund (IMF) mission concluded a visit to Bahrain, saying that growth in the country is anticipated to rise to 2.9 percent in 2025.
The mission led by John Bluedorn visited Manama on November 9-20 to conduct discussions for the 2025 Article IV consultation.
The mission will submit a report to IMF management and Executive Board, which is scheduled to discuss the Article IV consultation in January.
“Despite tight financial conditions and elevated global and regional uncertainty, Bahrain’s real GDP grew at 2.6 percent in 2024, while CPI inflation picked up modestly to 0.9 percent,” said Bluedorn in a statement on Monday.
“However, the fiscal position continued to deteriorate in 2024, with the overall fiscal deficit to GDP rising to 11 percent and gross government debt to GDP increasing to over 133 percent,” he said.
“After rising to more than a quarter of GDP in 2024, the government’s overdraft at the CBB has since declined 8 percent over 2025, while foreign exchange reserves have increased 11 percent,” the statement added.
Nonhydrocarbon sector drives growth
“Growth is anticipated to rise to 2.9 percent in 2025 and to 3.3 percent in 2026, with the completion of refinery upgrades and robust services, particularly in tourism and the financial sector. Over the medium-term, real GDP is expected to grow at around 3 percent, driven by the nonhydrocarbon sector, which is projected to account for nearly 90 percent of the economy by 2030,” Bluedorn said.
“Reflecting recent deflationary pressures, consumer prices are projected to remain flat in 2025, before CPI inflation rises to steadily converge to 2 percent over the medium term. However, absent new fiscal measures, the elevated debt-to-GDP ratio is expected to rise further,” he added.
Introduction of taxes
“To bring debt down durably and reduce risks, the priority is to commit to a steady, multi-year fiscal consolidation package, with efforts appropriately staggered to smooth the adjustment, alongside structural reforms to boost growth. Among the key measures to improve the fiscal balance are the introduction of a general corporate income tax to raise nonhydrocarbon revenues and reducing broad energy subsidies while targeting social transfers to protect the most vulnerable households.”
According to the statement, this package would balance growth and equity considerations and fiscal sustainability. Adopting a clear and well-communicated anchor for fiscal policy would further solidify credibility and help to reduce economic risks.
Recommendations on financial stability
“The Central Bank of Bahrain should continue to closely follow the US Federal Reserve in changes to its policy stance, in line with its fixed exchange rate regime. Finalizing the ongoing upgrade of the bank resolution and crisis prevention framework would help to further safeguard financial stability, said the statement.
Developing additional tools for domestic market liquidity management—including open market operations—would foster the local currency bond market and promote greater financial market deepening. As innovations in fintech and crypto assets sectors grow, continued close monitoring of the bank and non-bank linkages is key to preserving financial stability.
“Structural reforms to boost labor productivity through human capital and digital infrastructure investments would contribute to growth and ease the necessary fiscal consolidation,” added Bluedorn.
