Bahrain’s budget for fiscal years 2017 and 2018 serves as testimony of the complex challenges confronting the country’s public finances. The budget is beset by a host of problems, including an alarming deficit on the one hand and the possible introduction of value-added tax on the other.

To its credit, Bahrain stands out among Gulf countries by publishing budgets for two fiscal years consecutively. The practice is designed to provide private sector investors the opportunity to gauge governmental expenditures for two successive years.

Stats for fiscal year 2017 suggest expenditures of $9.2 billion and revenues of $5.8 billion, for a projected deficit of $3.4 billion and one less than 11 per cent of GDP. Yet, that for fiscal year 2018 suggest expenditures of $9.2 billion and revenues of $6.2 billion, and a deficit of $3 billion. The higher projected revenues partly reflects implementation of VAT.

The projected deficits compare favourably with the actual one for 2016, which it recorded $4 billion and 12.5 per cent of GDP. Anyway, the size of the deficit for fiscal years 2016 through 2018 violates a key criteria of the Gulf Monetary Union scheme. The GMU restricts budgetary shortage to 3 per cent of GDP.

Adding to the concerns, a recent report by Bank of America Merrill Lynch has classified Bahrain as having the largest fiscal deficit among 68 economies deemed most vulnerable to weak oil prices. And then there is the challenge of the ever increasing public debt, with the latest at a record $24 billion. This is sizeable amount by virtue of accounting for 76 per cent of GDP.

Bahrain has the smallest GDP in the Gulf, just shy of $32 billion. To assist the authorities with financial planning, the legislative assembly has agreed to raise the ceiling for governmental debt to nearly $34.4 billion, clearly above the GDP.

The cost of servicing the debit is specially frightening, standing at $955 million in 2016, but projected to rise to $1.2 billion this year. The debt level violates another aspect of the GMU, which stipulates a debt average of 60 per cent of GDP.

Nevertheless, despite all the talks about economic diversification, the petroleum sector contributes an average of three-quarters of revenues in 2017 and 2018. This reality places the well-being of Bahrain’s economy at the mercy of developments in the oil market.

Likewise, petroleum make up the bulk of total exports. However, Bahrain’s economy is noted for sustaining a relatively diversified GDP thanks to non-oil sectors such as financial services.

Bahrain is a small producer, with an output of 202,000 barrels per day, divided into 150,000 bpd from the offshore Abu Saafa field and 52,000 bpd from an onshore field. Saudi Arabia and Bahrain share the field’s production of 300,000 bpd.

Insights into the budget suggest that actual spending is higher when adding regional financial aid. Bahrain has been receiving generous grants from three Gulf countries since 2011. These are for diverse infrastructure and development projects such as hosing and road networks.

The UAE is noted for providing funding for the expansion of Bahrain’s International Airport at the cost of $1 billion. The expanded BIA facilities should be complete by 2020.

The writer is a Member of Parliament in Bahrain.