Bahrain Mirror (2019 Roundup): 2019 ended with more financial complications for Bahrain. There was no more room for the financial balance lie. The state hadn't actually benefited from the retirement of thousands of its employees under the voluntary retirement program. The public debt rose and exceeded 12 billion dinars (US$31.9 billion), after Bahrain borrowed 765 million dinars (US$2 billion) despite receiving Gulf aid.

Bahrain, as usual, searched for temporary fixes that do not cost it much, and do not put it up against investors and wealthy people in the country, as the state is working on collecting one billion and 100 million dinars from fees and taxes that are usually added as burdens to citizens' shoulders. Meanwhile, the state refuses to listen to IMF advice to impose an income tax on companies.

Reducing Subsidies and Imposing More Taxes

2019 started by raising the price of diesel fuel to 180 fils. Added Value Tax was imposed on vital services such as "electricity and water", and because the law prohibits the imposition of a tax on services monopolized by the state, lawyers filed a lawsuit against the state in this regard. However, the court rejected the lawsuit and said that imposing the tax is legal because the service is not monopolized, in an implicit sign referring to the privatization of this vital sector without an official announcement.

With regards to the electricity issue, the state also tried, as usual, to hold citizens more responsible by tampering electricity bills, which led to great anger among citizens. This led to the intervention of the Crown Prince, who provided a temporary solution, reminiscent of postponing the lifting of subsidies on meat, which meant that electricity bills will most likely be increased next summer with the new method of subsidies calculation. Meanwhile, the issue of smart meters remained a subject of controversy between different parties, especially between MPs and officials in the electricity sector.

Speaking of ineffectual matters, the ministries of the state, replaced, as part of their "austerity plans", Volvic and Evian water with ordinary mineral water and stopped buying luxury chocolate. Meanwhile, the expenditure reduction team in the Works Ministry rejected 152 requests for the maintenance of government buildings to save 1.5 million dinars. The austerity measures followed in the country reached an embarrassing level after the victory of its national team in the Gulf Cup. Players were seated in the studios of Bahrain TV, which broadcast a live campaign of donations from the private sector and citizens that would pay for gifts and rewards to players instead of the rewards usually provided by the state.

Gulf Support Does not Stop Borrowing

Bahrain launched an ambitious financial balance plan that appeared to be a prerequisite for receiving 3.76 billion dinars ($10 billion) in Gulf aid. Indeed, Bahrain announced that it received the first batch of Gulf support that will continue in the coming years in portions. It said that the Gulf support is not a grant, but benevolent loans that Bahrain will pay off in the long run.

The Governor of the Central Bank said that Gulf financial support means less borrowing than before, but the budget, adopted by the Government of Bahrain for 2019-2020, confirmed that the mentality governing the country is not ready to reduce security and military expenditures, which constitute 35% of the state budget, but is ready to cut expenditures of health, education and housing, which did not exceed 25% of the state budget.

The government announced that it had received the first batch of Gulf aid and said it was working on receiving the second batch. However, this did not reduce the country's public debt.

Despite announcing its expectations of receiving $2.28 billion in the second batch, it noted in its public budget that there is a financial deficit of 1.3 billion dinars which would be covered through borrowing. Indeed, a few days later, Bahrain announced borrowing 765 million dinars (US$2 billion), which had adverse results that contradicted the statements of the Minister of Finance, since the public debt exceeded 12 billion dinars for the first time. The National Audit Office report revealed something even more serious, when it pointed out that government companies are borrowing directly, and that their debts were not included in the public debt, which means that the declared public debt number is lower than the real one.

Chaos in Voluntary Retirement

The Voluntary Retirement Program launched last year (which is said to save about 166 million dinars annually) led to real chaos in the state's institutions and apparatuses. Thousands of employees left the government sector, which made a number of government cancel annual leaves due to the severe shortage caused by voluntary retirement.

According to official figures, 8,025 Bahrainis have left their government jobs under the voluntary retirement program and 45% of them were employees in the Ministry of Education. Meanwhile, Minister Esam Khalaf says that 43% of employees of the Ministry of Works and Municipalities have retired voluntarily, and Ministry of Health figures indicate that 1,800 employees have retired as part of the voluntary retirement program.

However, the lack of staff is the last concern on the mind of whoever made the decision. The real problem is in financing the voluntary retirement program. How would the state be able to pay about 300 million dinars in salaries and bonuses to those employees it wants to subject to voluntary retirement?

The government found the solution; by taking the money from the Unemployment Fund, since this fund has annual surpluses of more than 80 million dinars, while the expenses of the unemployed do not exceed 8 million dinars.

The government has sought an illegal, unconstitutional solution. It seized funds deducted from citizens' salaries to finance a specific project, and started to benefit from it in other places. The biggest concern was that the Government did not give MPs a guarantee that it would deduct only 230 million from the Unemployment Fund and that it would not do so again in the future to cover other costs.

No one expected the government to face any opposition. The government's law actually passed very smoothly from the Shura Council to the House of Representatives until the government secured 230 million dinars in its pocket, to fund the voluntary retirement program, which has a cost of 295 million dinars, according to the head of the Civil Service Bureau.

The story did not end here. The voluntary retirement program was opened for employees of 13 other government agencies. The Civil Service Bureau announced paying the salaries of the last batch of voluntary retirees at the end of August 2019.

The problems that emerged after the voluntary retirement program were very evident in the Ministry of Education, which hired a German company to solve the problem of a severe shortage of teaching staff, and announced the dispatch of Saudi teachers to be paid by Riyadh. However, at the beginning of the year, the newspapers revealed that there are dozens of schools without principals and teachers. In one case, they even resorted to a school guard to fill in some classes.

For its part, the Ministry of Works, which about half of its Bahraini employees retired, merged departments. There were also demands to privatize the inspection and control sector due to the lack of human resources. Meanwhile, a leaked document to the Civil Service Bureau pointed to facing the severe shortage of employees in government sectors by resorting to privatizing a number of jobs, most notably the posts of guards and information technology.

Uncertain Future

It does not seem that the government is going in any direction towards reducing its expenditures, and does not seem to care about the complaints of Bahraini traders, while its policies in favor of foreigners and attempting to attract foreign funds continues. Bahrain does not care much about the increase of its public debt and does not hesitate to cover its commitments by increasing borrowing. It is trying to make citizens bear the cost of financial and economic deterioration.

Bahrain does not seen any fault in opening the door for donations for the players who won the Gulf Cup, but at the same time spends $4 million on a prize that no one has ever heard of.

Everything the state does doesn't seem to matter, as long as it has the capacity to convince its rich neighbors to lend it money; its credit rating will rise, so it will be able to borrow more and more until we drown.

Arabic Version