Bahrain, one of the oil-rich Gulf’s most vulnerable economies, will focus on “stringent cost controls” as it seeks cut its budget deficit and reduce interest costs while using investment to stimulate growth, the country’s finance minister said.
The government trimmed the deficit by 35 percent last year as part of a plan to balance the budget by 2022, said Sheikh Salman bin Khalifa Al-Khalifa, minister of finance and national economy.
Cutting the deficit is a requirement of a $10 billion aid package funded by neighbouring states including the UAE and Saudi Arabia.
“It is very important to ensure we maintain spend where that spend drives economic growth, creates jobs or provides essential services or subsidies,” Sheikh Salman said. “While at the same time ensuring we revisit any areas of operational expenditure where we can put more pressure.”
Bahrain, the smallest among economies of the six oil-rich Gulf Cooperation Council members, was thrown a lifeline last year when three neighbours pledged $10 billion in aid.
The island’s economy was hard-hit since 2014 by lower crude prices, forcing it to rely on bond markets to finance its budget and current-account deficits as well as to replenish its foreign-currency reserves.
The support package was aimed at allowing Bahrain to borrow from international debt markets at cheaper rates and avert a currency devaluation that investors fear could lead other countries in region to follow suit.
The country is still evaluating funding requirements for 2019, but will tap the bond market “opportunistically,” the minister said on the sidelines of a meeting of Arab finance ministers in Dubai. The fiscal balance plan “takes into account maturing debt over the next four years and we would look to make sure we are doing the right things to bring down interest costs.”
The five-year Gulf assistance package was designed to cover half the government’s financing needs, including debt repayments, while it begins a program of savings that aims to end the budget deficit by 2022.
The country’s planned fiscal overhaul, which aims to save 800 million Bahraini dinars ($2.1 billion) annually, involves a voluntary retirement scheme for state employees and other measures to cut government spending and raise state revenue. Bahrain started implementing a GCC-agreed value added tax this year.
Sheikh Salman was named finance minister in December to replace Sheikh Ahmed bin Mohammed Al Khalifa following parliamentary elections.