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Throughout 2018, there was one question on the minds of investors and credit ratings agencies when it came to Bahrain, and that was whether there would be a financial bailout by its GCC neighbours. Regional analysts were confident that a bailout would occur, because letting Bahrain sink deeper into debt would bring about a problematic decline in the country’s fiscal position, hurt the government’s ability to borrow and threaten its ability to spend on infrastructure, jobs and future prosperity.
Thanks to Covid-19 and Manama’s outlay of $10bn in emergency stimulus spending, Bahrain has reached far more dangerous debt territory than it would otherwise have done in several years. It has also drawn further away from, not closer to, fiscal consolidation.
And yet the government was caught between a rock and a hard place. As parliamentarians pointed out during the debate over the stimulus package, not supporting the private sector would have been expected to result in the laying off of up to 30-40 per cent of all Bahrain’s workers.
Yet what has been done in 12 short months to the country’s fiscal health would equally have been unconscionable in any other circumstances, and paves the way for the spectre of whether Bahrain’s neighbours will once again assist their poorer sibling.
Manama does have some other routes to take, including a far more wholesale approach to public-private partnership in its financing of infrastructure, as well as its efforts towards privatisation. There is some precedent here, for instance in the development of all three of Bahrain’s independent water and power projects to date under the full ownership of private developers.
Bahrain’s boldness in relinquishing local requirements for minimum government equity stakes in this sector places it ahead of the regional curve, but more needs to be done to develop the frameworks for replicating the same sort of self-funding project success in other sectors.
Likewise, Bahrain’s fiscal plight could provide impetus to comprehensive structural reforms in areas such as the labour market and the government approach to the public sector and its wage bill. Big challenges, but ones potentially within reach of the country’s new prime minister, Crown Prince Salman, who may now have the political clout to enact a reformist agenda.
More from this month's Bahrain special report
> Pandemic deepens fiscal threat in Bahrain
> Bahrain’s new PM has everything to play for
> Bahrain banks face year of living dangerously
> Bahrain could regain renewables drive in 2021
> Bahrain oil and gas buoyed by expansion plans
> Pandemic reinforces construction trends in Bahrain
> Bahrain real estate recovery expected in 2021
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