With Dangerous Numbers Recorded, Bahrain Needs New Fiscal Balance Plan

2020-05-12 - 9:37 am

Bahrain Mirror (Exclusive): Recent developments have severely damaged the government's fiscal balance program in partnership with three Gulf supporters. It seems that Bahrain needs to prepare a new program to rebalance the country's finances.

Data reveals that Bahrain suffers from a huge budget deficit that increased from just 4% to 15.7%, a public debt that reached at least 14 billion dinars in the best estimates, and an economic recession hitting the world and the region.

Bahrain has borrowed about $4 billion (1.5 billion dinars) since the beginning of the year to cope with the financial effects of the historic collapse in oil prices and the Coronavirus pandemic.

The Government is approving the fiscal policy alone without referring to the legislative authority.

The government passed a legislation in 2017 setting the public debt ceiling at only 13 billion dinars, but figures show that the government has exceeded this number since last year.

Last year, the National Audit Office report said that the public debt amounted to about 14 billion dinars.

The Government has not provided an update on the amount of debt accumulated on public finances.

Last March, it borrowed $1.25 billion to pay off outstanding debt, before issuing local bonds worth up to $800 million last month, noting that it sold $2 billion in bonds earlier this month.

The government has borrowed about $4 billion (1.5 billion dinars) so far, while a planned payment under the financial balance program of $1.76 billion is awaited.

Sources told Bahrain Mirror earlier that the government has asked Gulf countries to move closer the date for the planned aid package, as part of a $10 billion aid program.

While junk-rated Bahrain considers its access to the markets at this time a challenge it succeeded in, the country's financial future is unpredictable with the dramatic rise in debt interest and Bahrain's low credit rating.

Bahrain has provided high interest on all debt instruments, both domestic and external.

This month, the government sold $1 billion in Sukuk at 6.25% and a $1 billion bond at 7.375%.

The interests of public debt are the largest item in the country's budget. The Government of Bahrain pays 640 million dinars annually to cover interest on its debt only. This figure represents about one third of the country's budget and may increase as debts increase.

Bahrain is expected to resort to further borrowing later this year to cover the budget deficit.

The Government has not provided a new fiscal vision for public opinion to address the crisis caused by the collapse in oil prices and the Coronavirus pandemic.

In a presentation for investors seen by Reuters, Bahrain said it expects a deficit of 4% of GDP this year. The International Monetary Fund has said it expects Bahrain's fiscal deficit to jump to 15.7% of gross domestic product this year.

The fixed income strategist said the discrepancy was because the figures Bahrain gave were estimates from end-February, meaning they did not factor in the oil price crash and the coronavirus pandemic's impact.

The government will eventually be forced to adopt a new program to rebalance public finances, but this should not be through legislation imposing additional taxes and lifting direct and indirect subsidies on citizens.

Arabic Version