Manama: Bahrain has “come a long way” in tackling its budget deficit and is committed to undertaking more reforms following last year’s $10 billion aid package agreed with its Gulf allies, the central bank governor said on Tuesday.

Bahrain last year embarked on a series of fiscal reforms linked to the package from its Gulf allies Saudi Arabia, Kuwait and the UAE to help it avert a debt crisis.

I think we have come a long way now with the fiscal balance programme. It has put out a clear plan to the market about how we are going to deal with our budget deficit and public debt.

- Rasheed Mohammad Al Maraj | Central bank governor

The first payment was made after the signing of the Gulf aid last year and “the programme will continue as we unfold our different action plans”, Rasheed Mohammad Al Maraj said at a finance conference in Manama.

“I think we have come a long way now with the fiscal balance programme. It has put out a clear plan to the market about how we are going to deal with our budget deficit and public debt,” he said.

Bahrain, which does not have the vast oil wealth of other Gulf Arab states, last year released a plan to fix its debt-burdened finances. The official fiscal deficit to GDP ratio in 2017 was 10.3 per cent.

Bahrain has not released 2018 figures but this month the finance minister said the government managed to cut the deficit by 35 per cent from the 2017 figure of $3.5 billion.

10.3%

the official fiscal deficit to GDP ratio in 2017

Abu Dhabi Commercial Bank in a recent research estimated the 2018 fiscal deficit to GDP ratio of 7.3 per cent.

Al Maraj’s comments came after Bahrain’s cabinet on Monday approved a draft state budget for the next two years that projects a further reduction in its deficit to reach $1.63 billion by 2020 as part of a fiscal reform programme.

The government has cut subsidies and raised taxes and fees as part of fiscal reforms. It introduced a value-added tax last month.

Al Maraj said Bahrain expects its economy to grow between 2.0 and 2.5 per cent in 2019, in line with last year’s pace.

He said Bahrain’s debt financing would be in smaller amounts, compared to previous years, and financing plans for this year will be decided after the budget is approved.

35%

cut in deficit in 2018 the finance minister estimated

Al Maraj also reiterated that the currency’s peg to the US dollar was the anchor of the central bank’s monetary policy and would remain so.

“Without having a transparent stable exchange rate I think we will have a chaotic environment that will harm business in Bahrain that will harm FDI and will create uncertainty that is not good for the growth of the country,” Al Maraj said.

The central bank governor also said he was hopeful that both conventional banks and Islamic banks would have the opportunity take part in banking mergers.

Last month Kuwait Finance House announced it is acquiring Bahrain’s Ahli United Bank in the first major cross-border bank merger in the Gulf region in recent years.