Bahraini Gov't Decides to Search for Alternative for Financial Balance Program

2020-10-29 - 12:33 am

Bahrain Mirror (Exclusive): The story of the Financial Balance Program started in October 2018 and ended in October 2020.

In January 2019, while at the Davos conference, Bahrain's Central Bank Governor Rashid Al-Miraj, wearing a heavy coat and behind him a snow-covered valley, stood with great satisfaction to announce to Bloomberg TV: Bahrain received the first batch of Gulf financial support, and confirmed that from now on it would borrow much less than it had previously borrowed.

But as the saying goes, tomorrow the snow will melt and the meadow will show. Local media outlets which all share one view have barely covered the piece of news which said that "Bahrain decided to review the economic program applied by the country, which is known as the financial balance program". 

"The Ministry of Finance and National Economy commissioned the American Lazard company to review the financial balance program for 425,000 dinars fees."

Lazard Ltd is a financial advisory and asset management firm that engages in investment banking, asset management and other financial services, primarily with institutional clients. It is the world's largest independent investment bank, with principal executive offices in New York City, Paris and London. Lazard was founded in 1848 and operates from more than 40 cities across 25 countries in North America, Europe, Asia, Australia, and Central and South America.

The financial balance program did not survive, collapsing under the economic conditions that prevailed with the Coronavirus epidemic and low oil prices.

The story of the program began when the government of Bahrain revealed in a statement published by Bahrain News Agency (October 4, 2018) that "The government of Bahrain announces a comprehensive package of reforms that will secure the Kingdom's long-term fiscal stability, stating that it signed a USD 10 billion financial support agreement with Saudi Arabia, UAE and Kuwait."

On October 22, 2020, the Ministry of Finance announced that the government had decided to review the financial balance program and commissioned a US company to help it survive the growing economic crisis. 

Recent developments have severely damaged the fiscal balance program, with a huge budget deficit jumping from just 4% to 15.7%, and a public debt of more than 14 billion dinars, amid economic stagnation.

As of May, Bahrain had borrowed about $4 billion (1.5 billion dinars) to cope with the financial effects of the historic collapse in oil prices and the Coronavirus pandemic. The Government unilaterally approves fiscal policy without referring to the legislative authority. The government passed a legislation in 2017 setting a public debt ceiling of only 13 billion dinars, but in August it agreed to raise the borrowing ceiling to 15 billion dinars ($39.8 billion) to finance the worsening budget deficit caused by the oil prices drop.

The government said in a statement published by BNA that the Cabinet approved the recommendation of the Ministerial Committee for Financial and Economic Affairs to issue bonds to raise the borrowing ceiling from 13 to 15 billion dinars, to provide financial needs to finance the state's general budget expenditures.

A report published by Bahrain Mirror in May 2020 noted that the government will eventually be forced to adopt a new program to rebalance public finances, but this should not be through legislation imposing additional taxes and lifting direct and indirect subsidies on citizens.

Arabic Version