What’s all the beef about Bahrain’s subsidy cuts?

Perhaps taking its cue from the United Arab Emirates (UAE), Bahrain is progressing with plans to cut meat subsidies in a bid to curb a nearly 1.47 billion dinars forecasted budget deficit amid falling oil prices.

Bahrain announced last month its proposal to cut subsidies on red meat, originally to be implemented in August but now set to take effect from Oct. 1.

Approval for the cuts has been delayed at least twice in the past months, partly due to parliament’s opposition and MPs’ fears over how such cuts would affect their constituents’ living standards.

For many years, Gulf Cooperation Council (GCC) members have been heavily subsidizing goods and services such as meat, petrol, electricity and water, in attempts to maintain low prices and social stability.

INTERACTIVE - PERCENTAGE OF GCC ENERGY SUBSIDY CUTS SINCE 2013:

Hover or click on each country to read data

“Bahrain could potentially have a double-digit budget deficit this year, so any move that puts the Bahraini budget on a steadier footing is a good thing, but it will take more than the meat subsidies policy to bring things under control,” Trevor McFarlane, founder and chief analyst at Emerging Markets Intelligence & Research (EMIR) told Al Arabiya News.

“Many more measures will be needed, but these will be politically sensitive. Gulf countries should follow the lead of the UAE, where fuel subsidies have been cut and in Abu Dhabi utilities subsidies reduced.”

It is expected that in the short run, Bahrainis will not feel the effects of subsidy cuts too much given that the government plans on opening compensation funds for families.

Registration for cash compensation started from Sept. 15, and 116,000 families have already been signed up.

However, expats - who make up nearly half of the country’s total population - will not have access to compensation.

Activist group Citizens for Bahrain told Al Arabiya News that feelings are mixed within society.

“The meat subsidy cuts have certainly caused a level of frustration within the society,” said group spokesperson Mohammed al-Sayed.

“But Bahrainis believe we’ve faced previous economic challenges during the past decade and will hopefully overcome the upcoming challenges, trusting that the government will take the necessary steps toward avoiding maximum damage to the economy and the standard of living.”

Regional economies

According to IMF estimates, the GCC countries have already significantly lowered their spending on energy and are forecasted to spend $59.4 bln on energy subsidies in 2015, down a total of 44% from 2013.

Kuwaitis are also feeling the crunch of falling oil prices after their favorite fish the pomfret - zubaidi in Arabic - was hiked up to 15 Kuwaiti dinars ($49.53) from the market average of 9 Kuwaiti dinars ($29.72).

However, a consumer boycott campaign under the slogan “let it spoil” forced the government to reduce prices after many fish markets were left deserted in August.

In Kuwait, the price of pomfret is not subsidized, but the country subsidizes basic foods such as sugar, rice, cooking oil and meat to keep prices low.

Fish markets were near empty earlier this year after a twitter #Letitspoil campaign pressured the government to lower prices

Consumers want fish added to that list, but the government says it cannot given how much subsidies are pressuring its budgets.

Omar al-Ubaydli, program director at Bahrain’s Center for Strategic, International and Energy Studies, says in the long run removing subsidies for basic goods is beneficial for all GCC economies, including Bahrain’s.

“They encourage highly wasteful consumption habits. None of these views are new - the International Monetary Fund [IMF] has been promoting the scaling back of subsidies in all GCC countries for many years,” Ubaydli said.

He added that subsidy cuts will enable GCC governments to move away from oil-revenue dependency.

“GCC countries have been trying to diversify their economies for decades, and most of them have stepped up their efforts in the last 10 years.”