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Tue 5 May 2015 12:25 PM

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Bahrain cabinet sees rising deficits in 2015-16 budget plan

Island state does not have its neighbours' huge financial reserves, so it has less room to maneouvre

Bahrain cabinet sees rising deficits in 2015-16 budget plan
(Getty Images)

Bahrain's cabinet approved a draft state budget plan for 2015 and 2016 that envisages slower spending growth along with a sharp rise in the deficit because of low oil prices, state news agency BNA reported on Monday.

Bahrain's wealthy Gulf neighbours are keeping state spending high in an effort to maintain social peace and economic growth in the face of a sharp cut in oil export revenues since last year.

But Bahrain does not have its neighbours' huge financial reserves, so it has less room to maneouvre. BNA did not specify how the government would cover its budget deficits, but it is expected to have to borrow heavily.

The cabinet approved spending of 3.571 billion dinars ($9.47 billion) in 2015, down from an originally planned 3.708 billion dinars in 2014. Spending is projected to resume rising to 3.721 billion dinars in 2016.

The budget deficit is forecast to climb to 1.47 billion dinars this year and 1.563 billion dinars next year, from an originally planned 914 million dinars last year.

The plan assumes an average oil price of $60 a barrel. Brent crude oil is now trading at $66 but has been below $60 for most of this year.

The draft budget will now be submitted to parliament and the advisory Shura Council, and may draw some criticism from members of parliament concerned by the rising deficits and the possibility of cuts to welfare spending.

To bolster state revenues, the government began raising prices of natural gas sold to companies last month, but because of political sensitivities it has held back from taking bigger steps such as raising subsidised diesel and petrol prices. It is not clear whether the budget plan to be presented to parliament may include such measures.

Last month, Moody's Investors Service downgraded Bahrain's long-term government debt rating to Baa3 from Baa2, keeping the outlook negative. It said that under present conditions, Bahraini government debt would increase to over 70 percent of gross domestic product by end-2016 from around 46 percent at the end of last year.

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