MATT SMITH: Bumper government spending helped to ease Bahraini residents’ financial difficulties during the pandemic, but the kingdom faces a tough challenge to reduce its deficit and bolster state revenue without harming an economic recovery.
Bahrain’s GDP shrank 4.9 percent in 2020, the International Monetary Fund (IMF) estimated, as the pandemic dampened domestic consumption and lowered oil revenue. This contraction would have been more severe without a 4.5 billion Bahraini dinar ($11.97 billion) state support package, which equates to about one-third of annual GDP.
The support included a 3.7 billion dinar central bank loan facility to enable loan deferments and provide extra lending, with banks instructed not to charge…