MANAMA: Bahrain's economy is expected to grow by five percent in 2011 from four percent forecast for 2010, the International Monetary Fund (IMF) said. Its economy grew by around three percent in real terms in 2009. "The near-term outlook is favorable. Buoyed by the rebound in oil prices, the continuing recovery in the global economy, and fiscal stimulus, growth is expected to accelerate from the three percent recorded in 2009 to four percent in 2010 and further to five percent in 2011," a mission from the Washington-based IMF said during its visit to Manama in December. "Inflation is anticipated to remain contained at around 2.5 percent next year," it added. Moreover, the mission found out that "the economy of Bahrain has managed the global crisis well. The crisis produced a sharp fall in oil prices, a tightening of global capital markets, and declines in regional and local real estate markets. High initial levels of bank capital and sound prudential norms established by the Central Bank of Bahrain ensured the resilience of the financial system, without recourse to the extensive direct interventions seen in many countries." The IMF noted that increased government borrowing in the last couple of years to finance fiscal deficits has boosted Bahrain's debt levels and highlighted the need to rebalance the fiscal accounts in order to ensure the existence of sufficient fiscal space to respond to external shocks in the future. In the first half of 2010, the public debt soared by nearly 47 percent compared with its level at the end of 2009 as the government pushed ahead with a fiscal expansion measures to mitigate the impact of the crisis. "Reorienting spending away from untargeted subsidies - accompanied by compensatory transfers to needy households - would provide room for an increase in public investment as well as providing fiscal savings. Non-oil revenues are currently low, and broadening the revenue base would not only raise revenues but also provide insurance against fluctuations in oil prices." The IMF further said the CBB's existing macro-prudential tools have worked well in preventing excesses from building up in the financial system and will continue to play a key role in insulating the economy from fluctuations in global capital markets. "With private sector credit growth gradually recovering, this will provide additional support for growth. The current high level of excess liquidity within the banking system provides an opportunity to foster the growth of the domestic debt market and push out the yield curve. A further strengthening of debt management capacity would be beneficial. While Islamic products have been an important growth area, there remain areas of uncertainty in the legal and regulatory framework that should be remedied," it said. Bahrain's debt stood at around BD2.23 billion ($5.8 billion) at the end of November, CBB said. In the first half of 2010, the public debt soared by nearly 47 percent compared with its level at the end of 2009 as the government pushed ahead with a fiscal expansion measures to mitigate the impact of the crisis.
