Gulf Support Program for Bahrain Stipulates Reducing Expenditure & Imposing VAT, as AMF Monitors Implementation

2018-08-27 - 1:52 p

Bahrain Mirror (Exclusive): A joint statement said on Wednesday (August 15, 2018) that Ministers of Finance of the Kingdom of Saudi Arabia, the United Arab Emirates, the State of Kuwait and the Kingdom of Bahrain reviewed options for providing the necessary support to enhance the stability of public finance and further stimulate economic growth in Bahrain.

The ministers reviewed a comprehensive fiscal balance program, believed to include harsh conditions including reducing expenditures to include restructuring of monetary aids provided by Bahrain to its lowest-income citizens compared to those in the GCC countries.

Bahrain's government has rejected the parliament's proposals to reform allowances paid to Bahrainis squeezed by years of austerity on the grounds that they would break government spending caps.

The government had explained it did not plan to raise direct cash allocations for subsidies in the next two years above the 382 million dinars ($1.01 billion) budgeted for 2018.

Bahrain has held off on fresh austerity measures, such as the introduction of value-added tax, until parliament agrees on a new system to compensate low- and middle-income citizens for increases in the cost of living while the supporting countries are pressing to implement the system by next year.

Bloomberg economic news agency stressed, at the end of last week, that Bahrain and its allies from the Gulf states are making progress in the aid program to help Bahrain reform its financial situation and avoid a devaluation that could trouble neighboring markets.

The agency said that officials from Bahrain, Saudi Arabia, the United Arab Emirates and Kuwait discussed a multi-year program that includes spending cuts and measures for increasing non-oil revenues, including value-added tax entry, according to five persons who had information on the discussions.

Information said that the Arab Monetary Fund, an IMF similar organization based in Abu Dhabi, has been involved in the discussions and may help monitor the implementation of the program.

Moody's Credit Rating Agency has forecast that the Bahraini debt may rise to up to 100% of the country's gross domestic product, a 90% increase of last year's numbers. The agency also pointed out that Bahrain lost the capability to access global debt markets at reasonable costs for the time being.

Bahrain's public debt rose by 12% in the first half of 2018, reaching 11.5 billion Bahraini dinars (30 billion dollars). It is expected that the deficit will reach 1.5 billion dinars as public interest rates rise to 500 million dinars.


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