Bahrain sees budget deficit falling to $1.6bn in 2020

Bahrain’s cabinet on Monday approved a draft state budget for the next two years that projects a further reduction in its deficit to reach $1.63bn by 2020 as part of a fiscal reform programme.

Bahrain, which does not have the vast oil wealth of other Gulf Arab states, last year released a plan to fix its debt-burdened finances after securing a $10bn Gulf aid pledge. It aims to eliminate its budget deficit by 2022.

The draft forecast spending at BD3.25bn ($8.62bn) in 2019 and BD3.28bn in 2020. It also announced additional public investments of BD670m in 2019, with an equal amount allocated for 2020.

The deficit was projected at BD708m in 2019 and BD613m in 2020, said a government statement.

It did not give the deficit projection as a percentage of gross domestic product. Last year, the International Monetary Fund said fiscal steps agreed by the government would cut Bahrain’s budget deficit to 11 per cent of GDP in 2018.

Revenues were forecast at BD2.74bn in 2019 and BD2.87bn in 2020. It was not clear if the figures included funds from the five-year aid package pledged by Saudi Arabia, the United Arab Emirates and Kuwait.

The 2018 draft budget had put revenues at BD2.3bn, including BD1.8bn from oil, with spending at BD3.5bn — a deficit of BD1.2bn.

Bahrain has not released actual 2018 figures but earlier this month the finance minister said the government managed to cut the deficit by 35 per cent from the previous year’s BD1.336bn.

The draft budget requires parliamentary approval.

“We still expect to see the potential for a widening deficit in 2019 with lower oil revenues. Nevertheless this should be contained by a pull back in government spending alongside fiscal reforms, namely the introduction of the VAT,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

The government has cut subsidies and raised taxes and fees as part of fiscal reforms. It introduced a value-added tax (VAT) last month.

The cabinet on Monday also approved hikes in fees imposed on foreign labour licenses under a job nationalisation programme to 500 dinars from 200 dinars. It proposed higher unemployment benefits for Bahrainis.

The kingdom has seen sporadic unrest since pro-democracy protests in 2011, which were quashed by Bahrain and forces from neighbouring Gulf states.

The cabinet statement carried on state media said the fiscal plan aims to balance public finances without affecting public services in Bahrain such as education, health and housing.

The legislature is still reviewing other sensitive reforms including changes to the pension system and a new subsidy programme.