Bahrain plans austerity steps to cut its budget deficit in line with International Monetary Fund (IMF) recommendations, its finance minister said on Saturday in comments that could help the island kingdom sell its bonds when it returns to international markets later this year.

Bahrain is one of several Gulf Arab oil states using the IMF's assistance to plan economic reforms as low crude prices put heavy pressure on state finances. The IMF is also providing valuable political cover for the painful reforms.

The kingdom is expected to return to bond markets this year to help finance its budget deficit, which is estimated by the IMF at about 15 per cent of gross domestic product this year.

Finance minister Sheikh Ahmed bin Mohammed Al Khalifa said the IMF's latest country recommendations "echo Bahrain's current fiscal action plan."

"Bahrain's Government Action Plan, currently underway, includes wide-ranging measures that will ensure the sustainability of Bahrain's financial resources and development, benefiting the entire country," he said in a statement quoted by the official BNA news agency.

On Friday, the IMF urged Bahrain to take "sizeable" steps to reduce its budget deficit, saying it could introduce a value-added tax being planned by Gulf states, cut spending on social transfers and freeze public-sector wages.

Sheikh Ahmed said Bahrain aimed to balance its budget "within three budgetary cycles". Bahrain drafts its budget plans in two-year periods, implying the kingdom would eliminate its deficit within six years.

Bahrain's budget plan for 2015 and 2016 envisaged a deficit of about BD1.505 billion ($4 billion). Austerity steps already taken include removing domestic price subsidies for meat and cutting them for gasoline.

The kingdom's plan is aimed at "continuing the longstanding diversification of Bahrain's economy by increasing non-oil revenues, redirecting subsidies to Bahraini citizens, and reducing recurrent expenditure by restructuring government departments," Sheikh Ahmed said without giving details.

Bahrain is trying to boost revenues from tourism, light manufacturing and services industries to reduce its heavy reliance on oil exports.-Reuters