Bahrain needs economic reforms

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Bahrain needs economic reforms
Official data suggests that Bahrain is struggling to cope up with its widening budget deficit, which has now grown to about 2 percent of the GDP. Photo-Michele Solmi

Official data suggests that Bahrain is struggling to cope with its widening budget deficit, which has now grown to about 2 percent of GDP in 2012.

During 2012, the country’s deficit swelled seven times to BD227 million (USD 601 million). Even though this figure was much lower than the initially forecast BD1.33 billion, it climbed significantly from the previous year. In 2011, the deficit was about 0.3 percent of GDP.

In recent months, Bahrain has actively pursued actions to cut down on spending increases and has seen its revenues grow. Data from the finance ministry shows that government expenditure increased 14 percent to BD3.26 billion, marginally below the planned expenditure of 3.85 billion. To appease Shi’ite Muslim protestors, Bahrain had increased its original 2012 expenditure plan by nearly 19 per cent in September 2011. The move was seen as critical to reduce social tensions and avert a larger crisis faced by some countries during the Arab Spring.

During 2012, Bahrain also enjoyed an increase in revenues by around 21 percent to BD3.03 billion. This was higher than the revenue estimates of 2.52 billion and mainly driven by a rise in oil and gas income. In 2012, Bahrain relied on output from the Abu Safa oilfield shared with Saudi Arabia for about 67 percent of its budget revenue. The country maintains a cordial relationship with Saudi Arabia, which provides political support to Bahrain’s Sunni rulers. However, the revenue from this field dropped by about 5 percent to BD2.02 billion when compared to the previous year.

The International Monetary Fund warned the small oil-exporter to immediately implement economic reforms so it can manage its public finances over the medium term. Failing to do so would cause the debt burden to become unsustainable and put the country’s economy under strain. The IMF estimates Bahrain’s budgetary gap to widen to 8.6 percent of GDP by 2018. The deficit is expected to be 4.2 percent this year.

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