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Bahrain’s State Spending to Jump 11% in 2013

Middle East : 28 June 2013

Source: Reuters

Bahrain’s state spending is expected to jump 11 percent this year, by more than originally planned, after its parliament approved BD174.2m ($462m) in additional expenditure, official data showed.

Budget expenditure in the small non-OPEC oil exporter is now expected to total BD3.62bn in 2013, up from BD3.26bn actually spent last year, according to a breakdown provided by Mahmood Almahmood, a member of parliament’s financial and economic committee.

Bahrain’s 2014 spending plan was raised by BD164.5m from last November’s initial finance ministry proposal, to BD3.71bn.

Parliament approved the 2013-2014 budget plan on Monday. Demands within parliament for extra spending, especially to raise public sector salaries by 15 percent, a measure opposed by the cabinet, had delayed approval for several months.

In the end, parliament passed the plan without the public sector pay hike, but it added rises in pension payments for both public and private sector retirees, and higher subsidies for food and other items, to the plan, Almahmood said.

The plan was supported by 23 deputies, while seven rejected it and 10 were absent, he said. Finance ministry officials were not available to comment.

The tiny island state faces difficult choices between boosting state spending to support the economy in the face of political unrest, and grappling with a rising state budget deficit, by far the largest in the six-nation Gulf Cooperation Council as a proportion of Bahrain’s economy.

Bahrain expanded its original 2012 expenditure plan by nearly 19 percent in September 2011 after protesters, inspired by revolts elsewhere in the Arab world, took to the streets of Manama demanding political reforms.

The International Monetary Fund warned in May that the island needed to reform its public finances in the medium term to avoid its debt burden becoming unsustainable.

Softness in oil prices is one threat. Bahrain now expects state revenue to dip to BD2.79bn in each of the years 2013 and 2014 from an actual BD3.0bn last year, based on an average budgeted oil price of $90 per barrel.

It predicts a budget deficit of BD833.2m in 2013, widening to BD914.4m in the following year. Last November’s initial budget plan had forecast shortfalls of BD662.0m and BD752.9m.

The actual deficit in 2012 widened sevenfold to 227 million dinars, though it was still smaller than the government’s original projection.

The oil price which the country needs to balance its budget reached a critical level of $115 per barrel in 2012, making Bahrain vulnerable to any sustained decline in oil prices, the IMF said.

The country relies on output from the Abu Safa oilfield shared with Saudi Arabia – which supports Bahrain’s Sunni rulers politically – for some 70 percent of its budget revenue. Analysts believe Manama’s share of the oil could be raised if its budget runs into trouble.

The IMF expects Bahrain’s fiscal deficit to widen to as much as 8.6 percent of gross domestic product in 2018 from 4.2 percent forecast for this year.

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