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Wed 7 Nov 2012 06:31 PM

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Bahrain gov't plans 6% cut in spending in 2013

Draft budget shows expenditure is expected to total $18.5bn over next two years

Bahrain gov't plans 6% cut in spending in 2013

Bahrain's government plans to cut its budget spending by almost 6 percent in 2013 as it seeks to curb its deficit, a draft budget released by the finance ministry shows.

Budget expenditure in the small non-OPEC oil producer is expected to total BD6.99bn ($18.5bn) over the next two years, state news agency BNA quoted ministry undersecretary Aref Saleh Khamis as saying late on Tuesday.

A breakdown provided by BNA shows the ministry pencilled in spending worth BD3.45bn for 2013 and BD3.54bn for 2014, according to Reuters calculations based on the report. It planned to spend a record BD3.65bn this year.

Bahrain boosted its original 2012 expenditure plan by nearly 19 percent in September 2011 in order to soothe social tensions, a prospectus for a sovereign bond showed in June. Political unrest among the country's Shi'ite citizens began early last year and has continued since then.

Khamis said the new two-year budget would help meet the basic needs of citizens and raise living standards, while keeping the financial sector stable and improving the investment environment.

Revenue is projected to rise to BD2.79bn in both 2013 and 2014 from this year's plan of BD2.52bn, based on an average budgeted oil price of $90 per barrel, compared to $80 in the previous two-year period of 2011-12.

The island kingdom expects a budget deficit of BD662m or 6.1 percent of gross domestic product in 2013, rising to BD753m or 6.6 percent of GDP in 2014, BNA quoted Khamis as saying.

The 2012 deficit is officially projected at 1.1 billion dinars in the revised budget, or over 10 percent of 2011 GDP. This year's actual deficit is likely to be much smaller because of high crude oil prices, which have averaged about $112 this year; analysts polled by Reuters in September predicted a 2012 shortfall of just 1.9 percent of GDP.

Soaring government spending on wages and other social measures has raised pressure on Bahrain's public finances, which depend on hydrocarbons for about 88 percent of income. Expenditure is set to jump by 41 percent on average in 2012-2014 compared to the level seen over the previous three years.

The oil price that Bahrain will need to balance its budget is estimated at $122 per barrel for 2013 and $126 for 2014, Khamis said, according to BNA. The Reuters poll estimated the Gulf Arab country's break-even oil price at $113 for 2012.

Bahrain relies on output from Saudi Arabia's Abu Safa oil field for some 70 percent of its budget revenue. The field's current production level is just below 300,000 barrels per day, of which Bahrain currently receives 50 percent.

Its 2013-2014 budget counts on its output from that field staying at 150,000 bpd in both years, while output from its own wells would reach 47,500 bpd in 2013 and 51,000 bpd in 2014.

Analysts have said Saudi Arabia, which supports Bahrain's Sunni rulers politically, could give the small state more oil from the Abu Safa field if Manama's budget runs into trouble. In the June bond prospectus, however, Bahrain said no assurance could be given that the current level of output that it receives from Abu Safa would be maintained.

Last year Bahrain received an aid pledge of $10bn spread over 10 years from its wealthier Gulf neighbours, but in June this year it said it had not received any of that money so far, and it is unclear when the funds will start to flow.

The government's direct and indirect subsidies are projected at BD1.5bn in 2013 and BD1.6bn in 2014, out of which BD878m and BD961m respectively would represent indirect support for domestic sales of oil and gas.

Project spending is seen at BD555m in 2013 and BD530m in the following year, BNA said, down from BD977m planned for 2012.