Bahrain: A Royal decree that raised Bahrain’s debt ceiling to BD10 billion could be vetoed by the Shura Council, despite being approved by MPs last week.
Parliament’s decision was taken after MPs were told the combined deficit for both years could reach BD4.5bn – BD1.5bn more than previously anticipated.
Low oil prices have resulted in significantly reduced revenues, prompting the government to target additional borrowing as a means to raise money.
However, the Shura Council has given the government one week to answer key questions before retrospectively voting on the decree, which was issued in October by His Majesty King Hamad.
In addition to raising the debt ceiling from BD7bn, the decree also grants the government executive powers to generate income through issuing bonds.
If the Shura Council votes against it, a final vote would be taken during a joint session of both chambers of the National Assembly.
“We have already prepared a list of demands that we want a response on from the government before giving the decree our approval,” said financial and economic affairs committee chairman Khalid Al Maskati yesterday after an urgent meeting on the issue.
“The decree has not been referred to us yet by Shura Council chairman Ali Saleh Al Saleh, but we were working since October on the pros and cons of rejection or approval. Approving it without guarantees would be dangerous, but rejecting it without knowing the details would be wrong.
“We have a general picture on the decree from parliament’s debate with the government, but we need to know more.
“It is a patriotic responsibility to ensure Bahrain doesn’t face trouble in future.”
Mr Al Maskati said the Shura Council’s main demands were for the government to provide answers and plans to counteract the negative effect of borrowing on the economy.
“We are still unaware where there was an urgent need to seek a decree to increase borrowing,” he explained.
“Whether it was to meet further expected slumps in oil prices or government plans to repay loans, we want to see documents showing repayment dates and real solutions to repay in a speedy manner.
“When is Bahrain expected to break even? The government should have conducted a study on the worst case scenario where oil prices could reach their lowest.
“Bahrain has just borrowed $2bn from the international market, but what is the reason for that borrowing and how will the money be used?
“It all comes without guarantees on what could happen to the value of our currency.”
Bahrain’s government wants to borrow to offset lower revenues from oil, which has dropped in price from $115 per barrel in mid-2014 to its current level of around just $40.
It is also gearing up to make additional spending cuts after launching a cost-cutting drive, as well as introducing measures to reduce spending – such as the axing of meat subsidies on October 1.
The government estimated the two-year national deficit for 2016 and 2016 combined would reach around BD3bn when it drew up its budget, based on oil prices of $60 per barrel, but must now factor even lower oil prices into its budget calculations.
Finance Minister Shaikh Ahmed bin Mohammed Al Khalifa revealed to MPs last week that the current $40 oil price meant the outlook was bleak. He added lifting subsidies for expatriates and the private sector was a priority, adding that without additional borrowing, the salaries of public sector workers were threatened.
MPs who voted against the decree did so out of concerns over Bahrain’s growing public debt – which is currently around 53pc of GDP. Initial calculations suggest that, as it stands, if the government borrowed the full BD10bn, then public debt would reach 84pc of GDP – well above the 60pc of GDP cap approved by MPs last month in a bill that has now been forwarded to the King for ratification.
mohammed@gdn.com.bh
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