“After the elections, voters are never given an applause” – Ljupka Cvetenova
I am not an economist. I don’t portray myself as one either, but apparently 99 per cent of Bahrainis are avid economic specialists and have a deep understanding of budgetary constraints, deficits, and how to maintain and control our national budget. A national outcry has risen (led by our parliament) against handing the government control of the pension and its budget. After speaking to specialists and economists I received a basic understanding of the issue and would like to lay it out to those interested.
What is Gosi? The Bahrain Social Insurance Organisation (known also as Gosi) is responsible for providing social insurance services for all individuals against the risks of ageing, disability, death, work-related injuries, and unemployment in both private and public sectors. This fund is very important to safeguard a secure future for workers, private and public. The SIO receives a certain portion of people’s incomes and invests that money in different projects to increase its value. The aim is to protect against inflation and to ensure that future retirement salaries get paid. Inflation is normally 2-3pc in normal economies, so if the return is 7pc annually then it’s a safe return.
What happened? To be fair, the past investments by the Gosi were not all successful and combining that with the financial crisis of 2008 and the Arab winter of 2011 and the subsequent decrease of petrol prices by 50pc not only was Gosi hurt badly, but so was the total governmental budget. Austerity measures were introduced across the board trying to slash budgets and cut costs in all ministries to prevent a governmental collapse. As our deficit doubled in five years the only option left was to borrow. Now we’re in a 90pc of our GDP hole (BD11 billion) and climbing. These are the highest of our history and way above the red critical mark in any economy. Parliament (under pressure from the government) recently approved higher borrowing just to keep the boat afloat. There may even be a risk of devaluating the dinar if things aren’t corrected immediately.
What about the pensions? Let’s make one thing clear. There won’t be any pensions if the government goes bankrupt. There is only one clear way out of this crisis; to increase income and decrease spending. It’s simple economics. Luckily the price of petrol is recovering and is around $74 dollars now (up from $50) which will significantly help our budget. The government is also heavily investing in startups and fintech and supporting local goods and services through Tamkeen and the EDB. There is talk about increasing the age of retirement to 65 years as well as other small adjustments, but the old pensions won’t be affected. The uproar is about the latest decision by the Shura council to give the government full authority to make changes without the approval of parliament (who will lose the most due to their dual pensions). Parliament is far from protecting the people more than protecting themselves, since they currently stand to receive public pensions as well as private. Two pensions! If they really cared they should be the first to give up their pensions since they already cost the government so much. The matter remains to go to a dual chamber vote since both chambers (parliament and Shura) are opposed.
Conclusion? Although there has been some mismanagement of the pension fund in the past, the government remains the only qualified entity to manage it, and it should remain fully within its control. When we had a strong budget (oil revenue), everything was subsidised, and we had a great standard of living; which reflects the government’s clear intentions to benefit its citizens. I haven’t seen anything of deep economic understanding nor great ethical intention from parliament in the past eight years which gives me even less faith in their abilities. I would strongly encourage them to go to work, since many of their sessions are cancelled due to no-show or because they all leave after prayers. The head of parliament has now resorting to cutting their salaries when they don’t show up for a vote. If there was any cost cutting to be done, it may be wise to look towards parliamentary salaries, since hot air and buffets seem to be cutting deep into a budget that doesn’t need any more burdens. Let’s remove the caps from our pens, and get to budgeting.