Bahrain to cut subsidies for expats as oil slump bites

Bahrain will begin cutting subsidies for goods and services to reduce state spending on its foreign population as low oil prices pressure its budget, a top official said.

Bahraini citizens will receive cash payments from the state to offset price rises when subsidies are removed, said Minister of State for Information Affairs Isa bin Abdulrahman al-Hammadi. Foreign citizens would not receive such payments.

“The majority of beneficiaries from subsidy of consumer goods and services are foreign nationals resident in the kingdom and companies but not individual Bahraini citizens,” the official Bahrain News Agency quoted him as saying late on Monday.

The government will therefore redirect subsidy policies to benefit local citizens only, Hammadi said.

Like other oil exporting countries in the six-member Gulf Cooperation Council, Bahrain employs many foreign workers; about half of its population of roughly 1.3 million is estimated to be expatriate. They benefit from state subsidies which keep down prices of fuel, meat, electricity, water and other items.

Paying for the subsidies has become increasingly difficult for Bahrain, which is less wealthy than its neighbours, as oil prices have plunged since last year.

Earlier this month the cabinet approved a draft budget which envisaged the budget deficit climbing to 1.47 billion dinars ($3.90 billion) this year and 1.56 billion dinars next year, from an originally planned 914 million dinars last year.

The government will have to borrow to bridge its budget gap, so “now the government borrows to support citizens only,” Hammadi was quoted as saying.

He did not give a specific timetable for subsidy cuts or say how big they might be. The subsidy for meat, which costs 47 million dinars, may be the first to be removed, but it is small compared to electricity and water subsidies, he said.

The budget draft sees spending on non-oil subsidies rising to 754 million dinars in 2015 from an originally planned 661 million dinars in 2014, and then falling back to 653 million dinars in 2016. Oil subsidies would total 103 million dinars this year and 105 million dinars next year.

Subsidy cuts could push up consumer prices in Bahrain and put upward pressure on foreign workers’ wages, potentially hurting companies’ competitiveness. Hammadi said the new policy would take into account the issue of competitiveness.

Other GCC countries also maintain expensive subsidy systems but have so far not laid plans for extensive subsidy cuts, fearing the impact on inflation and companies’ operations.