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Sun 22 Dec 2013 08:43 PM

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Bahrain gov't says no plan to cut state subsidies

Official gov't spokesperson allays concerns about possible rise in prices on essential goods

Bahrain gov't says no plan to cut state subsidies
(Photo for illustrative purposes only)

Subsidies are not being lifted on any basic commodities, Bahrain's Government said on Sunday.

Sameera Rajab, the government's official spokesperson, allayed concerns about a rise in prices on essential commodities in comments published by Bahrain News Agency.

Rajab said at a post-Cabinet press conference that the only planned hike in price would be on diesel and that would be marginal.

“Diesel price in Bahrain is comparatively the lowest in the region. This has led to the smuggling of diesel to other parts of the region. The price rise is an instrument to deter smuggling," she said.

Her comments are contrary to those attributed to Central Bank governor Rasheed al-Maraj earlier this month who reportedly said Bahrain will revamp some subsidies that have led to excessive consumption of energy and some foods.

He said in comments published by Bloomberg that the changes may start as early as this month and will include “certain mitigations” to avoid fueling inflation.

Last month, Kuwait's government plans to form a special committee to review subsidies on goods and services which are costing the Gulf Arab state more than KD4.5bn ($15.9 billion) a year.

Like other wealthy countries in the region, Kuwait does not tax earnings and provides a generous welfare system for its citizens. All residents, including foreigners, benefit from subsidised petrol, cheap electricity and water, while Kuwaiti nationals get extra support for housing and food.

The IMF has repeatedly urged Gulf countries to reduce energy subsidies, and has said Bahrain’s budget deficit will widen to 5 percent of gross domestic product next year, almost double the 2012 gap.

The IMF expects growth in the GCC's state spending to slow further in coming years; it forecasts an average rise of just over 4 percent annually in 2013-2018, compared to the 15 percent clip seen over the last decade.

But on current indications, this spending restraint will not be enough to prevent state budgets in many countries from going into the red, the IMF predicted.

Bahrain is currently the only GCC country in the red; it is expected to be followed by Oman as soon as in 2015, and Saudi Arabia in 2018.

King Hamad bin Isa Al Khalifa ordered a handout of BD1,000 ($2,650) per family in February in 2011, a month before Bahrain declared a state of emergency as protesters demanded more civil rights.

In September, Moody's Investors Service cut Bahrain's government rating by one notch to Baa2 and warned further cuts could be coming, citing the government's weak fiscal position and an outlook for lower-trend economic growth over the medium term.

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