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Bahrain shifts gears in new era

by Indrajit Sen on Mar 29, 2016

Bahrain has suffered as a result of the falling oil price.
Bahrain has suffered as a result of the falling oil price.

It had to happen sooner or later and it came about in January. The Kingdom of Bahrain, after having held fort for longer than its heavyweight GCC peers the UAE, Saudi Arabia and Qatar, decided to end subsidies on fuel prices with which (like all other GCC states) it had been aiding its nationals and residents for decades.

The state news agency BNA carried a statement from Bahrain’s Cabinet saying it had decided to set the new price for super fuel at 160 Bahraini fils ($0.424) per litre from 100 fils, while the price for regular fuel would be raised to 125 fils per litre from 90 fils, effective immediately.

Some Members of Parliament refused to enter the parliamentary chamber and stood outside, a day after the decision was passed, in protest, according to local media reports. The session had to be cut short as the chamber requires a minimum of 21 MPs to be present for meeting to proceed, according to a report by the Gulf Daily News. A panel has also been proposed to question Energy Minister Dr Abdulhussain Mirza and Finance Minister Shaikh Ahmed bin Mohammed Al Khalifa over the issue, the report added. “MPs want the government to realise that they are not puppets and should have a say in what should be done to tackle the financial crisis,” services committee chairman, Abbas Al Madi, told the local newspaper.

The removal of fuel subsidies would have negligible impact, if not prove beneficial, to consumers in Bahrain (the UAE reducing fuel prices every month to date now being another) in the short to medium term, as global crude oil prices – to which domestic rates have been synced – are expected to trade between $30-$40 in the foreseeable future.

However, the decision to terminate fuel subsidies directly reflects the blows the Kingdom’s exchequer has received in recent months, due to low oil prices. The fiscal deficit for both 2015 and 2016 is estimated to be around $13.5bn, according to government officials. “The Bahraini government decided to put in place plans to phase out fuel subsidies to both align with GCC efforts and relieve some fiscal pressure given that the majority of the government’s revenue [about 86% according to an estimate] comes from its oil and gas industry,” Ghassan Alakwaa, energy research analyst at APICORP, says.

The 2015-16 budget plan approved in May 2015 envisaged spending of $9.47bn in 2015, down from an originally planned $9.83bn in 2014. Spending was projected to be at $9.86bn in 2016. The deficit was forecast to climb to $4bn both for last year and this year, from an originally planned $2.42bn last year.

Malaysia-based RAM Ratings had downgraded Bahrain’s sovereign rating on the global scale to gBBB2(pi) from gBBB1(pi) in 2015, mainly premised on the country’s projected sharp fiscal deterioration which would see its fiscal deficit widened to 12.6% of GDP in 2015 (3.6% deficit in 2014), while the Kingdom’s debt load increased further to 57.1% of GDP (43.8% in 2014).

“Bahrain’s fuel subsidy rationalisation is timely and necessary to address its fiscal challenges, which stems from a sharply reduced fiscal revenue [from hydrocarbons] and expenditure that remains elevated. We see this as an incremental step towards fiscal consolidation, given that subsidies comprised 25% of the government’s budget for 2016,” Esther Lai, head of Sovereign Ratings at RAM Ratings, says.


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