An International Monetary Fund (IMF) mission led by Ms. May Khamis visited Manama from March 9–19, 2014 to conduct discussions for the 2014 Article IV consultation. The mission will submit a report to IMF management and Executive Board, which is tentatively scheduled to discuss the Article IV Consultation in May 2014.
At the conclusion of the visit, Ms. Khamis, issued the following statement:
“Economic performance remained moderate in 2013. GDP is estimated to have grown by 4.9 percent, supported by a rebound in the hydrocarbons sector, but non-oil activity is estimated to have slowed to 2.8 percent, largely reflecting weak investment sentiment and the delay in the 2013–14 budget approval. Non-oil GDP growth is projected to pick up to about 5 percent in 2014 driven by capital spending, with oil GDP expected to be flat. Overall growth is projected to revert to moderate levels in the medium term, around 3 percent, reflecting continued weak investment sentiment in the non-oil sector and limited growth in the oil sector.
“Fiscal adjustment must be a priority. The State budget deficit is expected to continue to rise in the medium term. Without additional fiscal measures, government debt is projected to increase and become an important source of vulnerability to the economy in the medium term. A gradual retargeting of subsidies to the lower-income segments of the population, and controlling the growth of other current spending (the public sector wage bill and goods and services) would help stabilize debt in the medium term. Capital expenditures should be preserved to limit the impact of fiscal consolidation on growth. Diversifying the sources of fiscal revenue is essential in the longer term to lower vulnerability to oil price shocks. Placing the pension fund on a more sustainable path is imperative.
“The banking sector is in good health. The capitalization of the banking system is high on average, around 18 percent for retail banks and above 22 percent for wholesale banks. Nonperforming loans (NPLs) to gross loans have continued on a downward trajectory in conventional retail and wholesale banking, and now ranges between 5–7 percent. While the Islamic retail banking segment has been tackling high NPLs, capital buffers for this segment remain adequate—at about 17 percent—with NPLs falling to about 13 percent of gross loans. Bahrain has not been affected by the most recent bout of volatility in global financial markets.”