Target
Bahrain Economic Vision 2030 identified fiscal sustainability as essential to the kingdom’s long-term economic viability. The vision targeted a reduction in government dependence on oil revenue for current expenditure, improved fiscal discipline, and the development of alternative revenue sources that would insulate the budget from commodity price volatility.
At the time of publication, Bahrain’s fiscal position appeared manageable. Government debt was modest, the fiscal balance was supported by oil prices above $100 per barrel, and the kingdom’s small budget (relative to wealthier GCC neighbours) seemed amenable to reform. The vision envisioned a fiscal trajectory in which revenues diversified, expenditures were disciplined, and the structural dependence on hydrocarbon transfers declined.
Current Status
Bahrain’s fiscal position has deteriorated significantly since 2008, making fiscal sustainability the most concerning dimension of the kingdom’s vision performance.
Public Debt. Government debt has risen to approximately 120 percent of GDP — among the highest in the GCC and elevated by international standards. This represents a dramatic deterioration from the pre-2008 position and reflects years of fiscal deficits financed by borrowing on international capital markets. Bahrain has issued conventional bonds and sukuk in multiple currencies, building a substantial debt stock with significant annual servicing requirements.
Persistent Fiscal Deficits. Bahrain has run fiscal deficits in most years since 2008, with deficits widening significantly during periods of low oil prices (2015-2016, 2020). The non-oil fiscal deficit — the gap between government expenditure and non-oil revenue — remains substantial, indicating that core government spending far exceeds what the non-oil economy generates in tax and fee revenue.
GCC Financial Support. In 2018, Saudi Arabia, the UAE, and Kuwait provided Bahrain with a $10 billion financial support package, conditioned on the implementation of a Fiscal Balance Programme. The package included budget support grants and project financing, providing critical fiscal relief but also underscoring the kingdom’s dependence on regional solidarity rather than self-generated fiscal sustainability.
Fiscal Balance Programme. Launched in 2018 as a condition of GCC support, the programme targets balanced budgets through expenditure rationalisation, revenue enhancement, and institutional reform. Measures include voluntary early retirement schemes for public sector workers, subsidy reform (partial fuel price liberalisation, utility tariff adjustments), revenue measures (government service fees, potential VAT introduction), and expenditure controls.
VAT Consideration. Bahrain has been considering the introduction of VAT at 5 percent, consistent with the GCC-wide framework that Saudi Arabia and the UAE have already implemented. Implementation has been delayed relative to peers, though eventual introduction appears likely and would provide a meaningful new revenue stream.
Oil Revenue Dependence. Despite reform efforts, oil revenue continues to fund the majority of government expenditure. Bahrain’s fiscal breakeven oil price — the price at which the budget balances — remains well above $80 per barrel, higher than some estimates of long-term average oil prices. This structural dependence means that any sustained period of low oil prices would produce fiscal stress regardless of reform progress.
Analysis
Fiscal sustainability is the single most critical threat to Bahrain’s Economic Vision 2030. A government running persistent deficits with debt at 120 percent of GDP has limited fiscal space to invest in the economic diversification, employment creation, and public service improvement that the vision requires. The fiscal constraint is both a symptom and a cause: weak diversification keeps revenue dependent on oil, while fiscal limitations prevent the investment needed to accelerate diversification.
The Fiscal Balance Programme and GCC support have provided stabilisation, preventing a fiscal crisis that could have produced sovereign default risk. But stabilisation is not sustainability. The programme addresses the flow (annual deficits) without resolving the stock (accumulated debt) or the structural dependency (oil revenue dominance).
The comparison with Abu Dhabi is instructive. Abu Dhabi introduced the same fiscal reforms (VAT, corporate tax) from a position of massive sovereign wealth and minimal debt. Bahrain is attempting fiscal reform from a position of significant debt and limited sovereign reserves. The same reform instruments generate different outcomes when applied at different starting positions.
Data Sources
Bahrain Ministry of Finance fiscal reports. Central Bank of Bahrain government finance statistics. IMF Bahrain Article IV Consultations. GCC support package documentation. Rating agency reports (S&P, Moody’s, Fitch) on Bahrain sovereign credit.
Assessment: Off Track
Bahrain’s fiscal position has deteriorated significantly since 2008, with public debt reaching approximately 120 percent of GDP and persistent fiscal deficits requiring GCC financial support. While the Fiscal Balance Programme has introduced stabilisation measures and reform instruments are under development, the structural dependence on oil revenue for government expenditure has not been resolved. The Off Track designation reflects a fiscal trajectory that has moved in the opposite direction from the vision’s sustainability objectives, with the accumulated debt stock creating constraints that will take years to unwind even under optimistic reform scenarios.