King intervenes to end budget deadlock


King Hamad yesterday stepped in to end the budget deadlock by giving direct instructions to pump in an extra BD100 million in for the 2009/10 to boost social services as he chaired, in the presence of Prime Minister Shaikh Khalifa bin Salman Al Khalifa, the weekly Cabinet meeting at Gudaibiya Palace.


BD50 million will be earmarked for each 2009 and 2010.


The move by the king ends a deadlock after the parliament rejected the budget proposal submitted by the government on the grounds that it did not include provisions for payingthe “inflation” allowance of BD50 a month for poor Bahraini families.


(16 March 2009)



Analysis and forecast (↓ decreasing risk)


The inflation allowance was introduced by the Bahraini government last year, to help Bahraini families whose income was under US $ 4000 a month overcome rapidly rising inflation. In the 2009/10 budget, the government reduced provisions that meant a smaller payment would be made. After negotiations between the government and parliament failed, the parliament rejected the budget, thus putting the country in unchartered political territory. The allowance is paid to the poorer segments of the Bahraini society, who are predominantly Shiite and thus reducing the allowance would have increased tensions between the Shiite majority and the predominantly Sunni government. As a worse case scenario, the deadline between the government and parliament could have resulted in the dissolution of parliament, which has been reinstated in 2002 after a 27 year suspension of parliamentary life. The intervention by the king to provide sufficient funds to continue paying the inflation allowance has diffused a potentially serious crisis.


A further point that the government does not want the parliament to discuss is the large proportion of the military expenditure in the budget, amounting to over a third. Some MP’s have demanded that this expenditure is reduced in favour of social spending, arguing that Bahrain does not require such large military budgets. However, given that the government and ruling family in Bahrain are Sunni, such military expenditure is seen as necessary to combat a perceived threat from neighbouring Iran. The population includes a large proportion of a Shiites of Iranian origin. Therefore opening the issue of military expenditure for debate would have resulted in inflamed tensions both within Bahrain and also with Bahrain’s neighbours. By accepting the demands of the parliament, the king has therefore also avoided a potentially more serious and deeper long-term crisis.


Bahrain has been one of the worst hit Gulf states due to the country’s exposure to the financial markets, which form a significant proportion of the GDP. The figure below shows the make-up of the GDP in 2007.