Proposals to slash government subsidies for foreigners and the private sector in Bahrain have prompted concerns among business leaders and the expatriate community, said a report.

Subsidy cuts would reportedly hit expatriates and companies first, with the details yet to be ironed out in negotiations between the Cabinet and the National Assembly,  reported the Gulf Daily News, our sister publication.

However, some believe higher costs of living could prompt some expats to leave unless they receive improved salaries - while businesses could increase prices to offset any hike in charges, it stated.

The government subsidises essential staples such as meat, flour, gas, petrol, diesel, electricity and water, but needs to save money in the face of lower oil prices - which have dramatically reduced national revenues.

It has budgeted for general subsidies of BD754.2 million this year and BD652.9m next year, in addition to oil subsidies of BD102.7m this year and BD105.5m next year.

Bahrain, which raised its debt ceiling from BD5 billion to BD7 billion in November, plans to increase borrowing even further - and expects to rack up debts of more than BD9 billion by 2020.

However, Bahrain Keraleeya Samajam president Varghese Karakkal suggested that instead of targeting expats first, subsidy cuts should initially focus on the wealthiest people - whether they are foreign or Bahraini.

"It should not be just for wealthy expatriates, but all the wealthy in Bahrain," he said.

"Many economies in the world tax high income earners more (than others) in order to share the burden fairly.

"In Bahrain, the majority of expatriates fall into the middle to lower income bracket, so it doesn't make sense to target expatriates.

"Expatriates and Bahrainis have been living hand in hand for decades and it doesn't make sense to target only wealthy expatriates, it should be all the wealthy in Bahrain."

He warned expats could decide to leave Bahrain if they are asked to pay more for items that were previously subsidised, especially if they do not receive better pay to offset higher costs of living.

Bahrain Chamber of Commerce and Industry committee board member Khalid Al Amin said subsidies should be phased out gradually rather than slashed with immediate effect.

"I don't mind phasing out subsidies, but if it is done it will have to be gradually and people will have to be given ample grace period," said Al Amin.

"They should do it over a time frame of 15 years."

He highlighted that companies with pre-existing contracts could suffer from overnight subsidy cuts, but agreed that savings were needed.

"We cannot live with subsidies forever," he said. "I agree they should be cut, but there has to be consideration and the business community must be consulted.

"Bahrain is primarily a service-based business economy so if subsidies are cut, it will heavily effect food, delivery and logistic sectors, as well as small to medium businesses.

"Additionally, it is not fair to just apply this to the private sector as we are also in competition with the public sector - if business subsidies are cut, then it should be for both government and private so the market remains competitive."

Al Wardi Transport managing director Turki Al Wardi claimed now was not the right time to consider slashing subsidies, with the economy already set to witness slower growth.

"It is not the right time now for subsidy cuts, especially when there is just no business," he said.

"Everything is at a standstill and there is no-one doing major projects at the moment.

"Even if you wanted to build a home, now is not the right time.

"As a business we have to adapt and if they do cut subsidies then any additional cost we incur will be pushed on to our clients."

Bahrain Federation of Expatriate Associations secretary-general Betsy Mathieson suggested wealthy expats could absorb subsidy cuts, but questions remained about who would be affected.

"Most expatriates living in Bahrain are living a better life than they would in their own countries and, believe me, they are grateful for all the benefits they receive," she said.

"The concern we have is how they will decide which expatriates will be effected."

Meanwhile, Jafcon Consultants chief executive and economist Dr Akbar Jaffari argued that subsidies cuts were long overdue - and suggested it was time for Value Added Tax to be introduced.

"What is happening in Bahrain with its subsidies doesn't happen anywhere else in the world," he said.

He described existing subsidies as a drain on the economy.

"The problem is that these subsidies are being spent on consumable items, which does nothing apart from draining the national budget," he said.

"Many countries function in debt, but the loans they take are used for something that will guarantee a return on investment - that is not the case in Bahrain."-TradeArabia News Service