Notwithstanding its limited resources, Bahrain stands out in allocating allowances for different causes as part of its social insurance programme. Some of these schemes are excessive and occurs at the expense of shortfall in public finance.
Among other handouts, the government continues to extend a special allowance to cope with the consequences of the imported inflation of 2007 and 2008. At the time, Gulf Cooperation Council (GCC) countries felt the urge of coping with runaway inflationary pressures that had soared into double-digits in some cases.
This was caused by high oil prices, which had touched a record $135 (Dh495) a barrel and the weakness of the US dollar, used for pricing oil as well as the prices of primary imports. Countries were burdened with inflated prices of exported goods.
Currently inflation is largely under control, averaging less than 3 per cent in all GCC countries.
Bahraini officials have since changed the “cost of living allowance” to that for supporting families with limited income if only to justify its continuation.
In fiscal year 2014, a Bahraini head of family earning $800 per month is entitled to get $265 a month in the form of this allowance for coping with expenses. It gets reduced depending on the earnings, but will not go below $132 a month for someone earning as high as $2,645 a month.
Another unusual allowance deals with boosting income of retired persons on the grounds that they deserve special assistance to meet the challenges of a high-cost society. During fiscal year 2014, a retired person earning a pension of $1,851 a month is entitled for a special allowance of $400. This gets reduced to $330 for those earning a pension amount of $1,850 to $3,968 a month.
Another allowance relates to a monthly amount of $400 to those with mobility problems, and there are also payments outgoing for widows and orphans.
Worryingly, total cost from allowances designed to cope with living expenses and for retirees are projected to touch $735 million in 2014.
Some of these can be questioned ones at a time when the budget has suffered a shortfall of $1.1 billion in fiscal year 2013. The deficit represents about 3.7 per cent of the gross domestic product (GDP), which in itself is not exceptionally worrying. However, this could have been controlled by doing away with some of the generous social payouts.
Bahrain is also known for offering a generous subsidy programme covering gas, petroleum products, utilities and some basic staples on top of the social allowances. Unlike those extended to the retired, anyone is entitled to benefit from the various subsidised products, including expatriates and visitors. In contrast, more resource-rich GCC countries restrict subsidised electricity to nationals.
Total costs associated numerous subsidies amounted to $3.4 billion in 2013, representing 11 per cent of GDP.
Yet, direct costs associated with allowances and indirect ones like subsidies compromise around 13 per cent of GDP, something not common in the world. Bahrain’s GDP is around $30 billion.
It is logical to provide financial support to families experiencing special circumstances plus the jobless, but not necessarily for working and retired persons earning a reasonable amount, if only to make better use of scarce resources.
The writer is a Member of Parliament in Bahrain.