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Bahrain's budget could have been more realistic
The authorities follow a conservative policy on revenues, fearing extraordinary developments in the oil market.
- By Dr Jasim Ali, Special to Gulf News
- Published: 00:45 February 10, 2008
Bahrain's budget for 2008 is not realistic when it comes to projected deficit. The government assumed an average price of $40 per barrel. This figure is exceptionally underestimated by virtue of comprising less than half the going rate in international markets. Oil contributes more than two-thirds of treasury income.
Bahrain authorities follow a conservative policy on revenues, fearing extraordinary developments in the oil market. The opposite is true with regards to expenditures. In 2006 (authorities are yet to release actual statistics of 2007), actual revenues increased by 44 per cent on the back of firm oil prices.
Conversely, real expenditures dropped by eight per cent due to capacity shortage in the economy and fear of inflationary pressures.
Projected budget deficit for 2008 is set at $947 million. The figure is exceptionally high, as it amounts to more than 17 per cent of committed spending. However, if recent history is any guide, the deficit should end up in surplus.
In 2006, the budget succeeded in registering $800 million surplus instead of recording $1.1 billion deficit. Stronger income together with lower actual spending helped reverse a projected shortfall into a surplus.
Again in 2006, the petroleum sector accounted for 77 per cent of total income, as opposed to 70 per cent in the projected budget. Yet, the results confirmed that oil remains the primary source of treasury income despite all the claims of economic diversification.
Undoubtedly, the petroleum sector remains exceptionally important for treasury income. The sector is projected to account for 74 per cent or $3.3 billion of total revenues in 2008.
The balance is generated from tariffs on imports and fees for government services, notably utilities as well as grants from friendly countries including the UAE. Total revenues amount to more than $4.4 billion.
Bahrain generates its petroleum revenue from sale of crude oil from both offshore and onshore fields plus gas. Abu Saafa field, which is shared with Saudi Arabia, accounts for 80 per cent of total oil revenue. Bahrain's own onshore field contributes and sale of gas accounts for 10 per cent apiece.
Total spending in 2008 is put at about $5.5 billion or eight per cent higher than budgeted figures for 2007. The planned spending amount comprises about one third of the country's gross domestic product (GDP). This is relatively high by international standards and indicative of substantial governmental involvement in the economy.
The budget figure includes $106 million emergency appropriation to help needy Bahraini families coping with inflation.
Inflation has emerged as a common complaint and a primary topic of discussion among people. Last week, a committee comprising ministers and members of parliament (including the writer) agreed to provide a financial lifeline to needy families.
As per the agreement, some $132 per month for one year will be provided to a family whose bread earner earns a maximum of $4,000 per month. The measure allows families earning higher amount but still suffering from inflationary pressures to file a complaint to claim the benefit.
Unfortunately, foreign nationals living and working in Bahrain are not entitled to this benefit. Yet, they can benefit from subsidies extended to basic commodities and utilities.
Public spending is vital for addressing challenges, particularly for finding jobs for locals and generating GDP growth.
Still, it remains to be seen whether the authorities would end spending the projected amount, or repeat the practices of the past few years (actual spending was less eight per cent from the projected amount in 2006).
The writer is a Member of Parliament in Bahrain.
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