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IMF urges Bahrain to cut spending and introduce tax

Bahrain needs to slash current spending by curbing subsidies and introduce taxes to diversify its sources of income and achieve a balanced budget away from volatile oil exports, the International Monetary Fund (IMF) said yesterday.
Concluding its fourth annual consultation article with the island, the IMF also expected a sharp slowdown in Bahrain’s economy this year because of lower crude prices but said it would still record growth.

Quoted by the report, IMF Executive Directors emphasized the key challenges faced by the Bahraini authorities this year are to safeguard financial stability and mitigate the impact of the global downturn on the domestic economy.

The Washington-based IMF said that most directors emphasized the need to ensure at least a neutral fiscal stance to avoid a further weakening of economic activity in the face of the global downturn, and some directors favoured a counter-cyclical stance in view of Bahrain’s low level of indebtedness.
“To ensure medium-term fiscal sustainability, directors stressed the need to diversify the revenue base, and supported the planned introduction of a value-added tax, corporate income tax, and excises to reduce the budget’s dependence on oil revenue,” IMF  added.

“Directors also emphasized the importance of containing current spending, including by linking salaries and benefits to performance and merit and gradually phasing out subsidies, in particular those on electricity and fuel.”

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