Fiscal Balance Program

Fiscal
Balance
Program

1
Fiscal Balance Program

Table of Contents
Overview 4

Economic Development 5

Developing the economy and promoting investment 6

1. Enhancing infrastructure and the regulatory environment 7

2. Development and simplification of government procedures 12

3. Attracting investment 14

4. Supporting the labour market and strengthening the role of the

private sector 16

Fiscal Situation 18

Fiscal Balance Program 22

Reducing government operational expenditure 24

Introducing a voluntary retirement scheme for government employees 25

Balancing the Electricity and Water Authority’s expenditure and

revenues by 2022 26

Streamlining the distribution of cash subsidies to citizens in need 26

Improving the efficiency of government expenditure 27

Simplifying government processes and increasing non-oil revenue 28

Targeted outcomes 29
Fiscal Balance Program

Overview
In recent years, the Government of the Kingdom of Bahrain has launched
a number of initiatives and programs that have contributed to ongoing
economic development and promoted investment into the Kingdom’s
economy. These efforts, underpinned by the principles of sustainability,
competitiveness and fairness enshrined within Bahrain’s Economic
Vision 2030, have led to the strengthening of the national economy, the
maintenance of low unemployment rates, and sectoral diversification.

In order to address the current fiscal challenge, the Government began

implementing an integrated program aimed at achieving fiscal balance by
restructuring the government budget to capitalise on economic growth. As
part of this process, a number of initiatives has been implemented to reduce
government expenditure and increase revenues, whilst enhancing service
delivery to citizens. The next phase of the program will focus on increasing
these efforts with the objective of balancing the government budget by the
end of 2022.

The Government will establish a governance framework to support the

effective implementation of the Fiscal Balance Program, ensure the program
is responsive to local and global economic developments, and align
government revenues with positive economic growth.

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Economic Development
Fiscal Balance Program

Economic Development

Developing the economy and promoting investment

The Kingdom of Bahrain’s economy has

expanded positively over the past years in
Average annual
7.5%
response to a long-standing policy of economic non-oil GDP
growth
and sectoral diversification and government-led
(2002-2017)
efforts to empower the private sector. Bahrain’s
Economic Vision 2030, which aims to achieve growth and prosperity for all
members of society and to enhance the role of the private sector as the main
driver of development, played a central role in this journey and has achieved
significant results to date. Between 2002 and 2017, overall GDP more than
doubled, with the growth of the non-oil sector increasing by an average of
7.5% annually, outperforming growth in the oil sector over the same period.

Oil Sector contribution to GDP

2002 2017
18%
42%

58% 82%

Non-oil sector Oil sector

Real Gross Domestic Product

(2002 -2017)
12,432
11,945
11,573

104%
11,251
10,782

BHD million
10,228
9,860
9,668
9,036

9,266
8,506
7,854
7,377
6,910
6,459
6,076
2002

2009
2003

2004

2005

2006

2007

2008

2010

2011

2012

2013

2014

2015

2016

2017

Non-oil Sector Oil Sector 6

Fiscal Balance Program
In support of these efforts, the Government has undertaken a number of
initiatives to promote economic development and investment. These initiatives
have focused on enhancing the investment environment and infrastructure,
streamlining business procedures, intensifying efforts to attract foreign
investment, supporting the labour market and private sector institutions, and
strengthening oversight over all government bodies.

Initiatives include:

1. Enhancing infrastructure and the regulatory environment

In recent years, Bahrain has fostered an environment conducive to economic

development, investment, high-quality employment, and the attraction of
capital through the creation of strategic projects including:

• The launch of a number of priority development projects which are

due to be completed in the coming years and will contribute to job
creation and economic growth.

Priority Development Projects

Funding contributions:

Private Sector
USD 15 billion iority
Pr

Government-Owned Companies
ts

USD 10 billion
je c

D
ro

ev
elo p m e nt P

GCC Fund
USD 7.5 billion

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Fiscal Balance Program

Examples of Priority Development Projects

Bapco
Modernisation
Programme

• The launch of several major infrastructure projects as part of the USD 7.5
billion GCC Fund committed in 2011 by the Kingdom of Saudi Arabia,
the United Arab Emirates and the State of Kuwait. These include the
creation of King Abdullah Medical City, the development of major roads
such as Shaikh Zayed and Shaikh Jaber highways, the establishment
of the Khalifa Town and Salman Town housing cities, as well as the
construction of a number of public schools and the expansion of the
electricity grid.

GCC Fund allocation by sector

Airport
Roads USD 1,000 mn
USD 1,046 mn
11%
14% 13% 2%
4% 28%
6%
Other Sectors
23%
29% USD 1,700 mn
14%

20%
Housing 21%
USD 2,183 mn 15%

Electricity and Water

USD 1,571 mn
Sports Education
Sewage Social Welfare
Health Industry
Reclamation Other

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Fiscal Balance Program

• The launch of the Bahrain International Airport expansion and

modernisation project at a total cost of USD 1 billion with the support
of the Abu Dhabi Fund for Development. The capacity of the airport
will increase threefold after expansion to reach 14 million passengers
per annum and phase 1 of the project is expected to be inaugurated in
2019.

Airport Expansion
Project
Project cost Launch of Capacity of the airport will
USD 1 billion Phase 1 in 2019 increase threefold after expansion

• The commissioning of the USD 4.2

billion Bapco Modernisation Program,
which is the single largest investment in
Bapco’s history and will see the refinery’s
capacity increase from 265,000 to
360,000 barrels per day.

• The commissioning of Alba’s Line 6

project, on track to launch in January
2019, which will result in Alba becoming
the world’s largest aluminium smelter
producing 1.5 million metric tonnes of
aluminium each year - a 52% expansion
of current production levels. The project
is set to create 3,200 jobs for Bahrainis.

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Fiscal Balance Program

• The implementation of 228 road

construction projects, worth
over USD 2.6 billion, to reduce
traffic congestion, increase the 228 projects over the past 10 years

flow of traffic and facilitate the worth USD 2.6 billion

transportation of goods.

• The adoption of the National Planning

Development Strategy 2030, which
emphasises an integrated approach
to urban development, increases
transparency in land usage and
contributes to the development of
Bahrain’s investment environment.

• The establishment of the Real Estate

Regulatory Authority (RERA), designed
to deliver a transparent and sustainable
regulatory environment for the real
estate sector, promoting investment and
protecting the rights of consumers.

• The launch of a comprehensive health sector reform program,

transforming the role of the Ministry of Health from an operator to a
regulator, and introducing a new national health insurance system.

• The expansion of the social housing finance scheme, Mazaya, whereby

beneficiaries obtain government-supported bank financing to purchase
housing units, accelerating access to housing.

• The adoption of the Fourth National Telecoms Plan in 2016 with the
aim of ensuring the continued development and efficient management
of telecoms infrastructure, creating the conditions necessary to enable
investments and businesses as well as maintain healthy competition
in the telecoms market. In line with the plan, a national ultra-fast
broadband network has been rolled out using fibre-optic cables.

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Fiscal Balance Program

• The establishment of a dedicated FinTech Unit

in the Central Bank of Bahrain to keep abreast of
the digital transformation of the banking industry,
and the launch of the FinTech Bay incubator and
co-working space. This is enabled by the creation
of a regulatory sandbox that allows fintech firms
and start-ups to safely develop innovative banking applications.

• The issuance of new legislation to support investment, such as

the Reorganisation and Bankruptcy law, the Competition law, and
amendments to the Commercial Companies and Notarisation laws.

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Fiscal Balance Program

2. Development and simplification of government procedures

The Government has redoubled its efforts to simplify trade and industry
regulations and procedures, including those that require approvals from
multiple agencies, to increase investment opportunities and enhance returns.

Initiatives undertaken include:

• The implementation of a new online commercial registration portal,

Sijilat, which provides an integrated system that simplifies commercial
registrations. The system includes all the necessary services and
information to obtain a commercial registration and business license in
Bahrain. The portal and its services are continuously updated to serve
more users.
Features:
24/7
Integrated system that works
round-the-clock

Simplifies the process to obtain

commercial registrations

COMMERCIAL REGISTRATION
PORTAL
Provides all necessary information
and services to start a business

Covers more than 550 business

activities

• The launch of a new initiative, Sijili, designed to simplify registration

procedures for Bahraini one-person companies whose owners work
without a commercial address or fixed headquarters. The initiative
includes 39 diverse activities aimed at encouraging start-ups.

• The launch of an e-transformation project for government services,

making more than 90 services available online and via smart device
applications, including traffic, utilities and Civil Service Bureau services.

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Fiscal Balance Program

• Under the umbrella of the Handara program, the

reengineering of 28 government services and the
simplification of procedures related to municipal
licensing, education, transport, and land registration
among others.

• The introduction of measures to increase capacity on King Fahad

Causeway for heavy and special vehicles, reducing the average travel
time for heavy vehicles from five days to less than ten hours. This is in
addition to new routes and simplified procedures for passengers.

Reducing
5 days
travel time for 10 hours
heavy vehicles
Previous average Current average
waiting time waiting time
• The launch of a program to evaluate government service centres,
implementing new criteria to improve the quality of services and increase
customer satisfaction.

• The establishment of a government auction company, Mazad,

which hosts public and online auctions, increasing transparency and
competitiveness within the sector.

• The privatisation of a number of government services, including the

maintenance and delivery of infrastructure, public transport services,
and certain healthcare and administrative services, increasing efficiency
and improving service delivery.

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Fiscal Balance Program

3. Attracting investments

The Government has adopted a strategic plan to develop six key economic
sectors, namely financial services, information and communication
technology, industry, logistics, tourism, and oil. The Economic Development
Board has enhanced engagement with investors at home and abroad by
highlighting the investment opportunities offered by the Kingdom in these
areas. As a result, the volume of foreign direct investment into the Kingdom
of Bahrain reached USD 17 billion between 2002 and 2017.

A number of initiatives has been implemented to increase the volume of

foreign and local investments, and create job opportunities:

• The Economic Development Board continues to

target international markets, operating through
more than 22 global offices. The board’s efforts
contributed to an average annual increase of 79% Average annual increase of

in foreign direct investment between 2002 and

2017.
79%
in FDI between 2002 and 2017

• New legislation was introduced to allow foreign investors 100%

business ownership in various sectors, with the objective of
making Bahrain the first choice for investors and creating quality
employment opportunities for Bahrainis.

• Measures were implemented to streamline visa

procedures, aimed at increasing tourism and business 117 nationalities
activities. Currently, more than 117 nationalities are able eligible for e-visas

68 nationalities
to obtain an electronic visa, with 68 nationalities able to eligible for
visas on arrival
obtain a visa on arrival.

• A new tourism strategy - Ours, Yours.

Bahrain - was launched aimed at
developing tourist attractions, increasing
the number of events and activities,
easing access to Bahrain through all entry ports (sea, land and air), and
providing quality accommodation for tourists.

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Fiscal Balance Program

• A national strategy to revive the pearling industry was launched

to strengthen and capitalise on Bahrain’s historic status as a global
pearling centre, providing the necessary services and infrastructure to
encourage pearl diving trips for locals and tourists. The strategy also
established the Bahrain Institute for Pearls and Gemstones (DANAT),
which aims to serve as an international hub for gemological research
and expertise.

• “Start Up Bahrain” was launched in 2016, with the aim to stimulate and
encourage entrepreneurial culture in the Kingdom. The initiative focuses
on six pillars: the start-up community, incubators and accelerators,
finance, education, regulation, and corporate partnership.

• A comprehensive strategy for the development of the logistics

sector was implemented to ensure Bahrain capitalises on its strategic
location as a logistics hub for the region.

• Bahrain hosted the first

Gateway Gulf investment
forum, which highlighted significant investment opportunities in vital
800 40 $26
economic sectors. The inaugural event was attended by more than
850 international investors, business Investors
leaders andCountries Billion
public sector officials
from more than 40 countries, and showcased USD 26 billion worth of
investment projects.

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Fiscal Balance Program

4. Supporting the labour market and strengthening the role of the

private sector

In 2006, the Government launched a program to develop and restructure

the labour market with the aim of making Bahraini citizens the first choice
for employers. The program included the establishment of the Labour Fund
(Tamkeen) to support Bahraini employees and private sector institutions. In
addition, the Labour Market Regulatory Authority (LMRA) was established to
regulate and oversee the sector in line with international best practices.

• Tamkeen continues to make an important contribution to the

development of the national economy through private sector
development programs. Since its inception in 2006, Tamkeen has
injected more than USD 2 billion into the national economy. To date,
Tamkeen’s support has benefited over 125,000 individuals and 45,000
businesses. One in every three Bahrainis in the private sector has
benefited from Tamkeen’s training programs. More than half of Tamkeen’s
projects are aimed at supporting small and medium enterprises.

Tamkeen has injected more than

USD 2 billion
into the national economy

125,000 individuals
45,000 businesses
have benefited from Tamkeen

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Fiscal Balance Program

• Several labour market regulatory programs

have been introduced, key among which is
the Flexible Worker System, which permits
foreign workers to live in the Kingdom of
Bahrain without a sponsor and work in a
number of fields with multiple employers on a full or part-time basis.

• The Export Development Centre is being established to encourage

and promote Bahrain’s exports and to strengthen the Kingdom’s
position as a global trading partner by providing the necessary tools
and services to develop non-oil exports.

Impact
These initiatives will continue to contribute to positive growth in the Kingdom’s
non-oil sector, strengthening its contribution to GDP, increasing sustainable
development and further enhancing diversification while reinforcing the pivotal
role of the private sector as the major driver of growth.

The Government will continue to develop vital economic sectors, attracting

the required investment to generate quality jobs and facilitate the transfer of
technology and global expertise to the Kingdom.

These efforts continue to have a direct impact on citizens, demonstrated by

the fact that between the 2008 launch of the Bahrain Economic Vision 2030
and 2016, average household income increased by 47%.

Increase in Household Income

47%

2008 2016

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Fiscal Situation
Fiscal Balance Program

Fiscal Situation
Bahrain’s long-standing commitment to economic diversification has delivered
tangible results across key sectors. However, to date, non-oil government
revenues have not kept pace with economic growth.

Economic Diversification
2002 2017
BHD 6.1 billion BHD12.4 billion
18%
42%

58% 82%

Non-oil sector Oil sector

Government Revenues
2002 2017
BHD 1.0 billion BHD 2.2 billion

33% 25%

67% 75%

Non-oil revenues Oil revenues

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Fiscal Balance Program

Growth of non-oil GDP in relation to non-oil revenues

Non-oil GDP Non-oil government revenues

The government’s dependence on oil revenues and the low growth rate of
non-oil government revenue has led to successive budget deficits.

Annual budget deficits

BHD mn
600 547
219
100
(31)
(227)
(400) (446) (460) (410) (455)
(900)

(1,400) (1,336)
(1,517) (1,635)
(1,900)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Average oil price USD 72 97 62 80 111 112 109 99 54 45 55

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Fiscal Balance Program

Successive budget deficits in recent years have seen public debt reach 87%
of GDP in the first half of 2018.

Increase in public debt (2007-2018)

2008 13%
2018 87%
Recognising the importance of restructuring government expenditures
and revenues to align with positive economic growth, stabilising debt and
strengthening fiscal sustainability, the Government introduced several
initiatives between 2015 and 2017 which ultimately yield fiscal savings worth
BHD 854 million annually. These initiatives were centred around three key
priorities: streamlining government expenditure, increasing revenues, and
redirecting government subsidies towards eligible citizens.

Nevertheless, further initiatives are required to achieve fiscal balance, which

has led the Government to prepare a Fiscal Balance Program expected to
reduce the deficit by BHD 800 million annually over the coming years.

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Fiscal Balance Program
Fiscal Balance Program

Fiscal Balance Program

Building on existing initiatives, the Government has launched the Fiscal
Balance Program with the overall objective to achieve:

A balanced budget by 2022

These initiatives include:
Fiscal Balance Initiatives

Reducing government operational expenditure

Introducing a voluntary retirement scheme for

government employees

Balancing the Electricity and Water Authority’s

expenditures and revenues by 2022

Streamlining the distribution of cash subsidies

to citizens in need

Improving the efficiency of government expenditure

Simplifying government processes and increasing

non-oil revenues

Projected impact of the Fiscal Balance Program

on an annual basis

BHD

800 million
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Fiscal Balance Program

Reducing government operational expenditure

Six government task forces will be activated to identify and implement savings
in government operational expenditure, with a focused scope including:

• Evaluating and recommending approvals or rejections for all expenditure

requests by government entities.
• Setting criteria for the procurement of standard products and services.

Streamlining Operational Government Expenses

Government Building
ICT
Maintenance
Task Force
Task Force

Government 6 Medical Resources

Building Rents
Task Force
government Task Force
task forces
Other Operational
Travel and Transport
Expenditures
Task Force
Task Force

Working mechanism

Purchase requests from

government entities are Task forces review the
submitted to the Ministerial The Ministerial Committee
purchase requests and
Committee for Financial Affairs approves or rejects the
submit their
and Rationalisation of purchase request based on the
recommendations to the
Expenditure, and then referred task force’s recommendations
Ministerial Committee
to the relevant task force

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Fiscal Balance Program

Introducing a voluntary retirement scheme for government employees

A voluntary retirement scheme will be offered to civil servants, providing

them with the opportunity to contribute to the Kingdom’s economic growth
through entrepreneurship or participation in the private sector. The scheme
encompasses various incentives, key among which is granting up to 5
years of service, a one-off direct cash compensation equal to the cost of
purchasing 5 additional years of service, an end-of-service promotion for
those eligible, plus an end-of-service indemnity.

Voluntary Retirement Scheme

Granting up to One-off direct cash End-of-service End-of-service

5 years compensation equal to promotion for indemnity
of service the cost of purchasing those eligible
5 additional years
of service

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Fiscal Balance Program

Balancing the Electricity and Water Authority’s expenditures and

revenues by 2022

This initiative includes gradual adjustments to electricity and water tariffs

while preserving benefits for Bahrainis in their primary households, with the
aim of enhancing efficiency and reducing spending to balance the Authority’s
expenditures and revenues by 2022.

Government subsidies for Electricity and Water

2014 2018 2022

Fiscal Balance
BHD

BHD 189
350
million
million

Streamlining the distribution of cash subsidies to citizens in need

The current cash subsidies program comprises multiple allowances typically

regulated and allocated by multiple entities. The consolidation and redirection
of cash subsidies towards eligible citizens is an important part of ensuring
fairness and improving quality of life.

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Fiscal Balance Program

Improving the efficiency of government expenditure

Furthermore, the Government has designed outcome-driven measures to

improve spending efficiency and strengthen accountability within government
departments. These include:

• Addressing cases highlighted in the National Audit Office report:

-- Administrative violations requiring swift action
-- Cases requiring internal investigation
-- Potential corruption cases to be transferred
Kingdom of Bahrain
to the Anti-corruption and Economic and
National Audit Office
Electronic Security General Directorate at
the Ministry of Interior

• Establishing a internal audit unit at the Ministry of Finance to improve

accountability and transparency. This unit is primarily responsible for
scrutinising internal procurement and administrative procedures across
government departments.

• Implementing a strategic plan to improve the Tender Board’s

services, rules, and procedures and ensure greater efficiency through
the use of electronic systems.

• Establishing a central procurement unit to oversee the procurement

process across government, while identifying ways to increase efficiency
of government purchases in coordination with the government task
forces to streamline operational expenses.

• Establishing a centralised unit at the Ministry of Finance to

independently evaluate purchase orders submitted by government
entities. The new unit will also be responsible for: collecting and analysing
data pertaining to government expenditure, providing technical support
to the Ministerial Committee for Financial Affairs and Rationalising
Expenditure, and setting guidelines for reducing expenditure.

• Establishing a Debt Management Office to develop a strategy to

manage the public debt and manage annual debt borrowing with the
aim of securing fair pricing for the Government’s financing requirements
over the short, medium and long term.

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Fiscal Balance Program

Simplifying government processes and increasing non-oil revenues

The Government will continue its efforts to increase non-oil revenues and
align them with positive economic growth through the following initiatives:

• Streamlining and simplifying government processes

The Government will continue to streamline processes and services and
review legislation with the aim of improving its performance and keeping
up with the pace of economic growth and technological advancements.

• Introducing Value-Added Tax in line with GCC Agreement

A 5% VAT will be applied to non-essential goods and services, in line with
the GCC VAT Agreement.

• Reviewing government services and fees

In order to ensure sustainability and quality of government services offered,
service fees will be reviewed to ensure they are commensurate with the
value of the service offered , while also acheiving full cost recovery.

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Targeted Outcomes
Fiscal Balance Program

Targeted Outcomes
The government of Bahrain continues to deliver advanced levels of
development across all sectors. Efforts to encourage investment, develop
key sectors and diversify the economy have created a fertile environment
for growth thereby delivering quality opportunities for citizens and raising the
standard of living.

To sustain this positive growth and development, the fiscal challenge facing
the government of Bahrain needs to be addressed in a sustainable manner
that ensures economic development continues to benefit citizens and future
generations.

To achieve this, the Fiscal Balance Program includes a series of initiatives

designed to build on previous efforts to stabilise the government’s finances
and align it with growth in the broader economy.

These efforts will have a direct positive impact on citizens as registered below:

Further develop the provision of

Enhance the efficiency and fairness of
sustainable government services in
direct government support to citizens
education, health and social services

Continue the provision of subsidized

Continue funding development and
electricity & water services to
The Fiscal Balance infrastructure projects
citizens in their primary residences Program aims to
strengthen the Kingdom’s
Create quality job opportunities fiscal and economic 6. Streamline and improve the
for citizens and ample support to foundations to ensure the provision of government
do business sustainability of resources services to citizens and investors
for future generations:
Improve the credit rating of the Kingdom
Establish rules for the sustainable use
of Bahrain, reducing the cost of financing
of resources
for citizens and investors

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Fiscal Balance Program

Key Performance Indicators

The Government has set targets to regularly assess the effectiveness of the
Fiscal Balance Program and its role in acheiving a balanced budget by 2022.

The dependence of government revenues on oil and the global drop in oil
prices has led to successive budget deficits. Initiatives launched between
2015 and 2017 successfully reduced the deficit in 2017, and further initiatives
under the Fiscal Balance Program will put the Government on track to
achieve a balanced budget by 2022.

Deficit as a percentage of GDP

-0.1%
-2.1%

-1.0%
0%

-4.1%
-9.8%

-8.3%

-8.2%

-8.3%

-8.4%
-9.9%

Debt as a percentage of GDP increased significantly in recent years reaching

87% in the first half of 2018 compared to only 13% in 2008. Initiatives
launched between 2015 and 2017 successfully reduced the debt trajectory
over the same period. Further initiatives under the Fiscal Balance Program will
aim to stabilise debt as a percentage of GDP and place it on a downward
trajectory.
Debt as a percentage of GDP
104%
100%
95%
90%
87%
79%
73%
62%

84%

82%
85%

85%
44%

44%
36%
33%
30%
21%
16%

13%

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Fiscal Balance Program

Despite positive growth in the non-oil sector’s contribution to GDP, non-

oil government revenues have not kept pace with economic growth. With
the implementation of the Fiscal Balance Program, government non-oil
revenues will be restructured to positively align with growth in the
non-oil sector.

Non-oil revenue as a percentage of non-oil GDP

6.9%

6.8%
6.6%
6.3%

6.2%
5.4%

4.7%
4.5%

4.4%

4.4%

4.3%
4.3%

4.3%
4.2%

4.2%

3.8%

4.6%

4.5%

4.4%
4.4%
Government spending increased over past years to peak in 2015
at 30.4% of GDP. With the implementation of several initiatives
between 2015 and 2017, the government was able to reduce
expenditure. The Fiscal Balance Program aims to further reduce
expenditure to its previous levels of less than 20% of GDP.

Government expenditure as a percentage of GDP

25.5%

25.0%
25.2%

25.1%
30.4%

29.1%
28.2%

28.2%
27.4%
27.3%

26.4%

26.6%

26.6%
24.1%

22.6%
22.3%

21.6%
21.3%

20.6%

19.5%

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Fiscal Balance Program

The contribution of non-oil revenues to recurrent government expenditure

decreased from 30.5% in 2007 to 11.9% in 2013. The Fiscal Balance
Program will reduce budget reliance on oil revenues and double the
contribution of the non-oil sector to government expenditure by
2022.

Recurrent government expenditure covered by non-oil revenues

34.1%
32.5%
30.5%

29.4%
26.4%
25.5%

17.3%
17.1%

17.2%

15.6%
15.4%

14.8%
14.4%
14.2%

13.8%
11.9%

17.0%

16.9%
17.2%
16.8%

33