Manama: Bahraini banker Rashad Janahi has called for an urgent reality check.
According to him, it is a fact that Bahrain had lost its edge as banking and financial hub to its neighbours and urgent steps are needed to arrest the slide in terms of competitiveness.
“The finance industry has failed to develop effective instruments and tap opportunities,” he told the GDN in an exclusive interview.
Nepotism and a “culture of entitlement” are the twin bugbears of Bahrain.
Nepotism is the practice of giving positions of power to kin, whether or not that family member is qualified and here it is compounded by wasta – referring to the advantage and benefits one gains from being part of a particular group or having connections, he said.
“Over the years, our society has developed the syndrome of mass entitlement to employment, services and subsidies and a culture of citizens conditioned to expect that government will always take care of them.
“A decade of booming oil prices encouraged regional government spending on public services and infrastructure on a scale that now looks unsustainable.
“There was lavish spending on welfare such as health care, education, public utilities and fuel subsidies.”
However, he said, a large and persistent drop in oil prices over the last year or so has raised a serious question about the long-term sustainability of the whole welfare package.
Unlike some of its GCC peers, Bahrain is now under great financial pressure to cut spending and diversify revenues, with the likelihood of running out of options in less than five years, he added.
“The country already has lots of debt and has been running deficits for several years now.”
There was no doubt that Bahrain is not alone, he said citing International Monetary Fund data.
A recent report by the organisation said GCC oil exporters, having lost $360 billion over the past year in export revenues, will have to deal with a cumulative fiscal deficit of more than $1 trillion over the next five years.
“What is worrying is that regional governments might cut project and infrastructure spending instead of focusing on trimming the fat in terms of government expenditure and public sector salaries,” he said.
Describing government plans to redirect subsidies on public services such as electricity, water, fuel, education and health only to the deserving and underprivileged as steps in the right direction, Mr Janahi said taxes and tariff increases should be based on financial and economic basis and not whether one was an expatriate or a Bahraini.
“Taxing only expats and making them pay more for services is unfair, reduces Bahrain’s attractiveness and also discourages foreign investors.
“Larger (and richer) Bahraini households must also be made to pay taxes and increased tariffs.
“Industrial loans should not be squeezed although utility tariffs for industrial users must increase, while subsidies for poor households must remain.”
According to him, while private businesses have come under increasing public pressure for failing to provide sufficient jobs for nationals, even as it benefited from subsidies and government contracts, the public sector was also to blame for economic problems.
Government and semi-government entities like Mumtalakat and others need to rethink their investment decisions within a comprehensive macro framework, he said.
“There is a need for improvement in managing public spending and expenditure monitoring.
“This will require a higher degree of transparency, more accountability, and civic engagement by involving various stakeholders in budget preparation and inviting independent institutions to monitor spending.
“Other public sector enterprises too have made improper use of government benefits,” Mr Janahi said.
It has been reported that BD300 million worth of subsidised gas has been given to GPIC and Alba.
“If you ask me, it will be cheaper for the government to foot their wage bills and take away the subsidy.”
He said an excessively swollen public sector does little to induce Bahraini youth to pursue higher education or job opportunities in the private sector.
“In light of all this, there is a need for improvement in public finance performance by addressing low productivity and improving the capacity of administrative and public sector institutions.
“This problem is aggravated by sustained demographic growth and to develop a merit-based competitive economy, well-targeted policies should be adopted to accelerate reform and facilitate the involvement of the private sector in the economy by removing regulatory and administrative barriers and easing access to small and large credit.
“I would like business leaders to drive joint action, share knowledge and experience in order to influence policymakers and businesses.”
Bahrain needs to implement higher standards in areas such as governance in family firms, diversity in leadership teams, public administration, and integrity in the supply chain, corporate reporting and responsible business, said Mr Janahi.
avinash@gdn.com.bh
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