Bahrain approves fiscal reforms to rein in debt

• Corporate tax to be introduced
• Higher fuel prices for businesses
• Debt forecast at 140% of GDP by 2028

Bahrain has approved fiscal measures intended to boost non-oil revenue and arrest a sharp rise in government debt. 

The 11-point package includes higher electricity and water tariffs, the introduction of a corporate tax, increases in fuel and natural gas prices for businesses and a 20 percent cut in administrative government spending.

Fees on foreign workers will also be raised, adding to a broader push to reinforce the country’s public finances and expand recurring revenue streams.

The overall cost burden on businesses, both listed and unlisted, is expected to rise meaningfully as higher utility and fuel prices combine with the introduction of corporate income taxation.

According to a note from Sico Bank, natural gas prices are set to increase by $0.50 per million British thermal units (MMBtu) each year, reaching $6 per MMBtu by 2029, a 50 percent rise from current levels.

Bahrain debt & current account balance

While details of the corporate tax have yet to be finalised, the market is likely to assume a minimum rate of 10 percent for the 2027 financial year until greater clarity emerges, Sico said.

Electricity tariffs will increase to 32 fils per kilowatt-hour from 29 fils, while water tariffs will rise to 775 fils per cubic metre from 750 fils. Tariffs for the first and second consumption tiers in citizens’ primary residences will remain unchanged, maintaining subsidies for lower-income households.

Shaikh Salman bin Khalifa Al Khalifa, Bahrain’s minister of finance and national economy, said the government was taking “decisive action” to lock in stronger economic and fiscal foundations.

Bahrain credit ratings

S&P Global Ratings downgraded Bahrain’s sovereign credit rating by one notch in November, from B+ to B. The ratings agency forecast government debt would climb to nearly 140 percent of GDP by 2028, from 118 percent last year, citing lower oil prices and persistent fiscal deficits.

“Bahrain’s debt numbers are high,” Victoria Harling, co-head of emerging-market corporate debt at investment manager Ninety One, previously told AGBI. “They’re spending too much fiscally and the discipline is not there. From a credit perspective, it’s the one country in the region that we are worried about.”

Bahrain remains reliant on financial backing from wealthier Gulf neighbours to stabilise its finances. In 2018 Saudi Arabia, the UAE and Kuwait pledged a five-year, $10 billion support package to help the island kingdom avert a funding crisis and implement economic reforms.

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Since then, Bahrain has progressed in broadening its revenue base. Value-added tax and fee reforms have lifted non-oil revenues by 147 percent since 2018, while a voluntary retirement scheme reduced the public-sector workforce by 18 percent.

A parallel set of business-focused reforms, including a national labour market plan and the Sijilat commercial registration portal, has lowered barriers to investment. 

Bahrain’s economy grew by 2.5 percent year on year in the second quarter of 2025, supported by a 3.5 percent expansion in non-oil activity.