IMF: Bahrain GDP to grow 3.3% in 2026 as reforms needed to curb debt

Bahrain’s real GDP grew by 2.6 per cent in 2024 despite global uncertainty, and is projected to rise to 3.3 per cent by 2026, supported by refinery upgrades and growth in services, particularly tourism and finance, according to the International Monetary Fund (IMF) following its 2025 Article IV mission to the Kingdom.

Inflation rose modestly to 0.9 per cent in 2024, while the fiscal deficit widened to 11 per cent of GDP and government debt surpassed 133 per cent of GDP. The IMF said Bahrain’s fiscal position “continued to deteriorate,” urging authorities to implement a multi-year fiscal consolidation plan and structural reforms to place debt on a sustainable downward path.

The IMF recommended introducing a corporate income tax, reducing broad energy subsidies, and targeting social transfers to protect vulnerable households. These measures, it said, would balance growth, equity, and fiscal sustainability.

The report noted that foreign exchange reserves increased by 11 per cent in 2025, while the government’s overdraft at the Central Bank of Bahrain (CBB) declined by 8 per cent. The current account remained in surplus at 4.8 per cent of GDP, although it narrowed from the previous year.

Looking ahead, the IMF projected consumer prices to remain stable in 2025 before gradually converging to a 2 per cent inflation rate over the medium term. It also forecast that by 2030, non-hydrocarbon sectors will account for nearly 90 per cent of Bahrain’s economy, reflecting continued diversification progress.

IMF mission chief John Bluedorn emphasised the need for a credible fiscal anchor and continued monetary alignment with the US Federal Reserve under Bahrain’s fixed exchange rate regime. He also called for completing upgrades to the bank resolution and crisis prevention framework, expanding liquidity management tools, and deepening the local currency bond market.

Bluedorn said structural reforms focused on human capital development and digital infrastructure will enhance productivity and support fiscal adjustment. He also encouraged efforts to deepen intra-GCC trade and expand into non-GCC markets, noting that such initiatives would improve resilience and boost medium-term growth.

The IMF commended Bahrain’s authorities for their cooperation and commitment to ongoing reform efforts, saying that “bold and responsible policy actions will be essential to ensure sustainable growth and financial stability.”