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INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RHMFISS/HQ USCENTCOM MACDILL AFB FL PRIORITY
RHBVAKS/COMUSNAVCENT  PRIORITY
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C O N F I D E N T I A L SECTION 01 OF 03 MANAMA 001418 
 
SIPDIS 
 
SIPDIS 
 
EB, NEA/ARP 
 
E.O. 12958: DECL: 07/25/2016 
TAGS: ECON EFIN PGOV BA POL ECTRD
SUBJECT: BY THE NUMBERS: BAHRAIN'S 2007-08 BUDGET 
 
REF: A. MANAMA 1214 
     ¶B. 05 MANAMA 1581 
     ¶C. 05 MANAMA 900 
 
Classified By: CDA Susan L. Ziadeh, reasons 1.4 (b) and (d). 
 
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SUMMARY 
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¶1. (C) The King July 20 signed the GOB's biannual 2007-08 
budget.  The two-year budget was the subject of significant 
controversy because it was introduced to both councils of 
parliament on a "fast-track" basis (Ref. A).  Buoyed by 
rising oil prices, it provides for sizable increases in urban 
development, education, and social spending.  In addition, 
the Ministry of Housing and Public Works will receive 
substantial project funding for housing creation.  However, 
it is unclear whether electricity and water infrastructure 
has been funded to keep pace with growing development. 
Funding for mortgage lending has also been generously 
addressed.  The Ministry of Information tops the list of 
operating budget recipients.  The 2007-08 budget demonstrates 
increased GOB transparency, though room for improvement 
remains.  End Summary. 
 
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FAST-TRACK BUDGET RATIFIED 
-------------------------- 
 
¶2. (U) The King July 20 signed the GOB's 2007-08 budget.  It 
had been passed unanimously July 15 by the Shura 
(Consultative) Council (Bahrain's appointed upper house). 
The two-year budget was the subject of significant 
controversy, principally because it was introduced on a 
"fast-track" basis.  Though the Shura Council complied with 
the fifteen-day time constraint imposed by "fast-track," many 
expressed the hope that this would be the last time they 
would be called upon to consider a national budget on such an 
expedited basis. 
 
¶3. (U) Bahrain has a continuing infrastructure development 
agenda, oil prices are high, and 2006 is an election year for 
the Council of Representatives (COR, the elected lower house 
of parliament).  In addition, both COR Members and the GOB 
are keen to address a housing shortage that has been a bone 
of contention among even the middle class.  These factors 
have all combined this year to drive an expansionary fiscal 
policy for 2007-08, as evidenced by a 21.8 percent increase 
in spending  over that allotted under the previous two-year 
budget.  Urban development, education, and social spending 
top the government's priorities. 
 
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OIL REVENUE BONANZA 
------------------- 
 
¶4. (U) The Prime Minister July 2 described the 2007-08 budget 
as "the most comprehensive and significant in Bahrain's 
history, boosting Bahraini citizens' standard of living, 
housing, educational, health, and social services." 
Budgetary expenditures, which will support these and other 
projects, are spread evenly between the two fiscal years.  Of 
the total BD 3.79 billion expenditures allocated, BD 1.89 
billion will be spent in 2007, with the remaining BD 1.9 
billion expended in 2008.  (Note: the Bahraini dinar is 
pegged to the U.S. dollar at BD 1 to USD 2.66  End Note.) 
The budget forecasts BD 2.84 billion in revenues, reflecting 
a BD 950 million deficit.  However, the deficit has little 
practical meaning, since it assumes a crude oil market price 
of USD 40 per barrel.  (Note: Petroleum processing revenues 
accounted for 76 percent of the GOB's income in FY 2005.  End 
note.) 
 
¶5. (U) Finance Minister Shaikh Ahmed bin Mohammed Al Khalifa 
defended the USD 40 per barrel budgetary estimate before the 
Shura, noting it was the highest in Bahrain's history.  He 
said that, although the figure was lower than current world 
prices, it represented a hedge against future fluctuations 
that could lead the price of oil downward.  He promised that 
actual oil revenues would be disclosed in the 2007-2008 
closing budgets.  (Note: The FY 2005 budget had forecast a BD 
203 million deficit, based on USD 30 per barrel of oil.  In 
fact, the year closed with BD 672 million in surplus 
revenues.  End Note.) 
 
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MANAMA 00001418  002 OF 003 
 
 
EDUCATION ADVANCED 
------------------ 
 
¶6. (U) Providing context for the budget's education 
expenditures, the Prime Minister said, "the government's firm 
belief that the overall boost being witnessed by the kingdom 
on all economic, political, and social levels necessitates 
further investment in human resources."  (Note: When Economic 
Development Board Chief Executive Shaikh Mohammed Bin Isa 
Al-Khalifa presented the GOB's economic reform blueprint 
October 2005 he said reforming Bahrain's education system was 
a critical factor for Bahrain's economic survival, as the 
country strives to maintain and/or boost its competitiveness 
in key sectors, including financial services, information 
technology, healthcare services, telecommunications, tourism 
and training services (Ref. B).  End Note.)  Bahrain 
University will get an additional BD 3.74 million for 2007. 
Funding for overseas scholarships has been doubled to BD 7 
million.  The GOB projects that this will provide funding for 
some 1583 high-achieving students.  In line with the GOB's 
E-education initiative, an additional BD 2 million has been 
earmarked for computing equipment and instructional 
materials, largely to be sourced by Microsoft. 
 
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HOUSING HIGHLIGHTED 
------------------- 
 
¶7. (U) Ministry allocations related to infrastructure reflect 
a recent trend in housing development, addressing a major 
bone of contention among even the middle class.  BD 374.84 
million is to be directed toward projects under the Ministry 
of Housing and Public Works, and BD 197.82 million has been 
allocated to the Ministry of Electricity and Water, though 
Shura Council Finance Committee Secretary Khalid Al Maskati 
questioned whether this was sufficient to support the 
country's rapid commercial and residential development.  The 
budget also provides an extra BD 30 million for home loan 
financing.  In addition, families on the housing waiting list 
for five years or more will receive BD 14 million between 
them in allowances next year. 
 
¶8. (U) The GOB has placed significant emphasis on urban 
development and housing creation in the Central Governorate 
and northern portions of the Southern Governorate.  (Note: 
The Southern Governorate, including Hawar, constitutes 
roughly two-thirds of Bahrain's land mass.  However, largely 
because it encompasses Bahrain's proven and exploratory 
oilfields, it remains the least populated of the country's 
five governorates.  Nevertheless, it is the site of some 
important development, including the Al Areen Resort, the 
Riffa Views residential/commercial complex and the 
newly-constructed National Stadium.  End Note.)  Development 
in the immediate area of the recently-approved Bahrain-Qatar 
Causeway will also be particularly important once 
construction commences in 2008.  More sewage networks and 
roads will also be built, especially in newly residential 
areas, which are still waiting for infrastructure enhancement. 
 
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SOCIAL SPENDING SURGE 
--------------------- 
 
¶9. (U) Funding for social services has also been generously 
addressed.  Financial aid for the disabled will be doubled 
next year to BD 2.2 million, social welfare payments will be 
doubled to BD 8.4 million and an extra BD 2.85 million will 
be provided in other social aid.  A further BD 15 million 
will finance early retirement for Bahraini government 
workers.  In addition, a one-time BD 300 bonus will be paid 
on January 1 to retired government and private sector workers 
on pensions of BD 700 a month or less, at a cost of BD 5.6 
million. 
 
---------------------- 
MOI: A KEY BENEFICIARY 
---------------------- 
 
¶10. (C) The Ministry of Information will receive substantial 
funding for continuous expenditures, more than any other 
ministry.  Over fiscal 2007-08, BD 701 million, or roughly 25 
percent of the continuous expenditure budget, will be devoted 
to the daily upkeep of the ministry.  The continuous 
expenditures will mainly go to salaries for staff, including 
that of the Bahrain News Agency, Bahrain Radio, Bahrain TV. 
The Ministry of Information also supports culture and tourism 
programs that in other countries would be implemented by a 
 
MANAMA 00001418  003 OF 003 
 
 
ministry of culture or tourism.  Ministry censors screen 
print and entertainment media for Islamic decency code 
violations.  The ministry also monitors and enforces the 
protection of intellectual property rights.  (Note: Ministry 
of Information operations are broadly viewed as expensive, 
bloated and inefficient.  Despite the ministry's large 
budgetary allotment, rumors persist that an announcement of 
the GOB's reorganization of the ministry is in the offing. 
Key functions of the ministry would be privatized or 
reassigned.  End Note.) 
 
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QUESTIONS REMAIN 
---------------- 
 
¶11. (U) The 2007-08 budget did not address notable fiscal 
factors.  For example, during Finance Committee 
deliberations, Shura Council member Al Maskati complained 
that the budget should have included pension funds, which are 
estimated to have a BD 2 billion budget deficit.  Maskati 
also noted that the budget is silent on the GOB's foreign 
investment and whether or not it is profitable. 
 
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COMMENT 
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¶12. (C) The GOB's agreement to increase the forecast price of 
oil to 40 dollars per barrel represents progress in a drive 
begun in 2005, when the COR first openly challenged the GOB 
on its custom of calculating oil revenues based on overly 
conservative prices and then using the surplus income for 
discretionary development projects (Ref. C).  However, there 
is clearly room for greater transparency.  Even taking into 
account an expected increase in global refining capacity by 
late 2007, the GOB forecast stands at more than 25 percent 
below predictions of respected market analysts.  Although 
actual oil revenues will subsequently be reported, it is 
unclear if there will be adequate accountability for the 
disposition of those funds.  End Comment. 
 
 
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ZIADEH