A government plan in Bahrain to cut subsidies would mostly affect low-income expatriate workers, who would need a salary increase to cope with the extra expenses, according to experts.

The Gulf Daily News (GDN), our sister publication, last week reported that a comprehensive study on overhauling the subsidy system was underway at Cabinet level.

Expatriates and private companies, not Bahrainis, will be affected by subsidies cuts, which would reduce the burden on the national budget as subsides cost the government BD1.5 billion ($3.9 billion) in 2013.

This included BD67 million for food, BD268 million for petroleum products, BD610 million for gas and BD350,000 for electricity and water.

Economist and Jafcon Consultants chief executive Dr Akbar Jaffari said the government was 'feeling the punch' because of its subsidy system.

“During the 70s when there was oil boom and inflation was high the government took control of the market and subsidised essentials such as meat, chicken, rice, flour, gas and petrol,” he told the GDN.

“I witnessed the impact on the economy it had then and was a timely decision. This continued in the 80s and by then the rich started to benefit from this scheme.

“At least 47 per cent of the subsidies are for gas, 21 per cent for petrol and only a small margin on food.

“Now the rule is clear, those who do not deserve subsidies should not get it, but there should be compensation for the lower-income groups such as cash transfer in the form of a salary hike.

“By controlling the subsidy programmes, we can deal with those who abuse this system by smuggling diesel and meat products.”

Dr Jaffari said as a result employers would be forced to increase salaries of low-income expatriates.

“Salaries in Bahrain are low compared to other Gulf countries because the cost of living is not high,” he added.

The new subsidies system would be presented to the National Assembly alongside the two-year national budget for this year and the next.

However, the government would continue to borrow up to BD7 billion in line with a decree that raised the debt ceiling from BD5 billion last November, even though parliament retrospectively voted against the decree last week.

The GDN also reported that the National Oil and Gas Authority readjusted diesel and natural gas prices from April 1, as part of government plans to redirect subsidies to benefit eligible people only.

The Bahrain Asian Traders Committee, part of the Bahrain Chamber of Commerce and Industry, warned the new measures would cause higher inflation.

“We do understand the need for the government to take this measure to reduce dependence on the national budget, but it will lead to inflation with high prices of essential commodities,” said committee chairman Mohammed Sajid.

“This will also affect hotels, restaurants and even monthly budgets of families.”

His comments were reiterated by Migrant Workers Protection Society chairwoman Marietta Dias, who said expatriate families would be at the forefront of those affected by the subsidies cut.

“Some of the families cannot even pay rent and are forced to share flats with others, and they have to pay school fees and other expenses,” she said.

“It is going to be harder for some.”

Meanwhile, the Bahrain Federation of Expatriate Associations said it supported the new government plans.

“We expatriates are extremely grateful for the generous hospitality, care and concern shown to our communities by the leadership of Bahrain and we must always remember that Bahrain is a welfare state where expatriates lead a good lifestyle and they do not have to pay taxes,” said its secretary-general Betsy Mathieson.

“Many live here more comfortably than in their own countries.

“Global governments are being affected and if Bahrain is taking measures to cut down on subsidies, I am confident the government will ensure the final decision taken is not unconstitutional and respects human rights for all.

“However, our concern remains for the potential abuse of lower-income groups and families who rely on subsidies to live a decent lifestyle.” - TradeArabia News Service