Budget cuts new cabinet's first priority in Bahrain

04 December 2014

Lower oil prices mean social spending is unsustainable

Bahrain’s Prime Minister Khalifa bin Salman al-Khalifa is preparing to announce his new post-election cabinet. Like other GCC countries, the main item on the government’s agenda is adjusting the budget to reflect lower oil prices. But Bahrain’s calculations will be the most challenging.

The November elections went smoothly enough to satisfy important foreign partners, despite the boycott by Shia opposition parties. The newly elected Council of Deputies is made up of pro-government independents and is unlikely to challenge the executive branch on major issues such as the budget.

The composition of the new cabinet will reveal a lot about Bahrain’s fiscal priorities. Public debt reached 43.5 per cent of GDP in 2013 and is on an upward trend. Despite a few major projects such as the upgrade of Sitra refinery and plans to increase aluminium production, a large proportion of Bahrain’s spending is on public sector employment, social programmes and subsidies. These rocketed after the political unrest in 2011, while tourism and banking, important non-oil economic sectors, suffered. Since then, Bahrain’s higher spending has been underwritten by Saudi Arabia.

But the situation is growing ever more acute, and Saudi Arabia is also feeling the pressure of $70-a-barrel oil. Doubts are growing about how much financial support Riyadh and other rich neighbours can afford to give as they examine their own budgets.

Manama cannot balance its budget without cutting subsidies and welfare programmes. But this would disadvantage the government’s key constituencies at a time when their political support is needed more than ever.

Bahrain’s new cabinet has some difficult decisions ahead, as they try to leave the political tensions of the past four years behind and reinvigorate the country’s struggling economy.

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