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WASHINGTON, Jan 29 (Reuters) - The International Monetary Fund on Friday urged Bahrain to take "sizable" steps to reduce its growing budget deficit as slumping oil prices have sharply reduced exports and government revenues.
The warning following the IMF's annual consultation with the island Gulf state comes as another struggling oil producer, Azerbaijan, is seeking as much as $3 billion in IMF financing aid and a $1 billion World Bank loan, according to a source familiar with the matter.
An IMF team is currently meeting with Azeri officials in Baku on a fact-finding mission, discussing technical assistance and assessing possible financing needs.
The steep drop in oil and commodity prices in the past year amid strong global production and lower Chinese demand has sparked concerns about the economic stability of a number of oil and commodity exporters, including Venezuela, Nigeria and Brazil, now mired in its worst recession in decades.
In Bahrain, the IMF said it forecasts gross domestic product growth to fall to 2.2 percent in 2016 from 3.2 percent in 2015 and 4.5 percent in 2014. The country's budget deficit will remain elevated at 15 percent of GDP, causing debt to increase substantially.
"With the oil price decline expected to persist over the medium term, external and fiscal vulnerabilities have intensified, and consumer and investor sentiment has weakened," the IMF said in its review.
"A sizable fiscal adjustment is urgently needed to restore fiscal sustainability, reduce vulnerabilities, and boost investor and consumer confidence," the Fund added.
Near-term fiscal measures could include the implemenetation of a previously agreed value added tax, reducing spending on social transfers and freezing public-sector wages, it said.
Fiscal consolidation will help support Bahrain's dollar peg, the IMF said, adding that Bahraini banks' strong capitalization and liquidity will help them weather a slowdown in growth.
(Reporting By David Lawder; Editing by Chizu Nomiyama) ((David.Lawder@thomsonreuters.com; +1)(202 898 8391; Reuters Messaging: david.lawder.thomsonreuters.com@reuters.net))
Keywords: BAHRAIN IMF/
The warning following the IMF's annual consultation with the island Gulf state comes as another struggling oil producer, Azerbaijan, is seeking as much as $3 billion in IMF financing aid and a $1 billion World Bank loan, according to a source familiar with the matter.
An IMF team is currently meeting with Azeri officials in Baku on a fact-finding mission, discussing technical assistance and assessing possible financing needs.
The steep drop in oil and commodity prices in the past year amid strong global production and lower Chinese demand has sparked concerns about the economic stability of a number of oil and commodity exporters, including Venezuela, Nigeria and Brazil, now mired in its worst recession in decades.
In Bahrain, the IMF said it forecasts gross domestic product growth to fall to 2.2 percent in 2016 from 3.2 percent in 2015 and 4.5 percent in 2014. The country's budget deficit will remain elevated at 15 percent of GDP, causing debt to increase substantially.
"With the oil price decline expected to persist over the medium term, external and fiscal vulnerabilities have intensified, and consumer and investor sentiment has weakened," the IMF said in its review.
"A sizable fiscal adjustment is urgently needed to restore fiscal sustainability, reduce vulnerabilities, and boost investor and consumer confidence," the Fund added.
Near-term fiscal measures could include the implemenetation of a previously agreed value added tax, reducing spending on social transfers and freezing public-sector wages, it said.
Fiscal consolidation will help support Bahrain's dollar peg, the IMF said, adding that Bahraini banks' strong capitalization and liquidity will help them weather a slowdown in growth.
(Reporting By David Lawder; Editing by Chizu Nomiyama) ((David.Lawder@thomsonreuters.com; +1)(202 898 8391; Reuters Messaging: david.lawder.thomsonreuters.com@reuters.net))
Keywords: BAHRAIN IMF/
