Bahrain was rescued by Saudi Arabia, along with Kuwait and the United Arab Emirates, last year as it suffers from a prolonged period of lower oil prices that caused its public debt to reach 93 percent of its annual economic output. Despite the aid from its neighbors, its economy has little room for maneuver because of a large gap in its finances and the growing sectarian tensions among the Shi'ite majority populace and of taxes, fees, and spending cuts that affect its growth.
This year, Bahrain imposed a new sales tax which means that the government will gain from every product sold in the country. Saudi Arabia, Kuwait, and the United Arab Emirates pledged $10 billion for Bahrain. The nation was also included in JP Morgan's emerging market indexes. The index transformed its bonds from a busted bet to an advantage for investors.
Last June, the price of Bahrain's 2028 dollar bonds increased by a third as it recovers from its lowest record as it looked in danger of default. The upward trajectory of the nation might end if Manama fails to secure its spending overruns.
The estimate of the International Monetary Fund (IMF) said that Bahrain would need to introduce a raft of new taxes and spending cuts to eliminate its budget deficit that was set as part of its bailout by 2020 with the nation's overall deficit last year amounting to 11.7 percent of annual economic output.
The nation booted its revenues and balanced its books by setting its sights on trying to grow the local economy. Bahrain's government sees its future sources of revenue from investments in the fintech sector, major oil and gas find and the development of Bahrain as a hub for foreign companies wanting to tap into the larger Saudi Arabian market.
Analysts, however, believe that the investments in the country are not sufficient to close the gap by 2022. The International Monetary Fund expects the nation's economy to grow around 1.8 percent in 2019. The organization said that additional reforms efforts were needed in the country.
Trevor Cullinan, a sovereign credit analyst at Standard & Poor's, said that they still think there will be deficits at the end of the period. The ministry of finance and national economy of Bahrain said that its fiscal program was on track to deliver a balanced budget in 2022. The ministry also said in a statement that it is a comprehensive and credible plan which, through a combination of spending reductions and revenue measures, is already delivering significant progress.
