Before following some of its neighbors and exploring raising taxes to boost revenue, the focus is now on ensuring that a projected recovery gathers pace next year. Looking at the economic impact or potential for economic impact for any new revenue-boosting measures. Despite a $10bn bailout package pledged by its wealthier neighbors in 2018, Bahrain’s public finances have been under strain from the twin shock of the pandemic and lower oil prices. The kingdom has responded to the health emergency by rolling out a stimulus package estimated by S&P Global Ratings at about 32 per cent of gross domestic product, mostly consisting of liquidity for lending and debt deferment. The smallest economy among the six Gulf Cooperation Council members, Bahrain is on track to run a budget deficit that will widen to double digits as a percentage of GDP this year.
Countries that long relied on oil receipts have started to look for fresh sources of revenue, but Bahrain has yet to take new steps since implementing value-added tax in 2019. Saudi Arabia tripled VAT earlier this year, while Oman said it was exploring the introduction of income tax, which would make it the first state in the region to do so. Bahrain is committed to keeping its pledge to hold spending under control as part of the aid package that envisaged a balanced budget by 2022, the government is wary of new revenue-boosting measures that would dent growth. A combination of recovering crude prices and optimism about the impact of vaccines have helped restore investor confidence, with the premium between Bahrain’s and Saudi government debt narrowing. Bahrain’s early response to the pandemic and extensive testing have enabled the economy to reopen and movement restrictions to be lifted. More than 2 million coronavirus tests have been conducted in the country of 1.5 million people. It’s also approved a Covid-19 vaccination made by Pfizer for use, the second country to do so after the UK.