- Mr Abdulla Abdulaal
- Email address:
- Thesis title:
- Fiscal policy dynamics in a rentier state: the case of Bahrain, 1990-2012
- Year of Study:
Despite serious efforts and decades of economic diversification, Bahrain’s fiscal policy remains heavily shaped by its natural resource endowments. Similar to the other oil exporting countries overlooking the Persian Gulf, external income comprises the vast majority of Bahrain’s government revenues which in turn finances the state’s rentier expenditure policies. Generous public sector wages, energy subsidies and other forms of welfare spending are crucial tools of distributing oil rents among the population. In return for such economic benefits, the reigning social contract demands political acquiescence. This is manifested in several swings and cycles in the global oil markets and the domestic political movements between 1990 and 2012 which have presented severe challenges to the regime in Bahrain.
By analysing the state budget final accounts and related official publications, this thesis unpacks the determinants and dynamics of Bahrain’s fiscal policy. As anticipated, the primary underlying driver was oil prices as the 2000s commodity boom led to high economic growth rates fuelled by pro-cyclical government spending. However, expenditure policy reacted significantly to the delicate political climate as the regime has been in a constant struggle to create legitimacy. Although there were surges in infrastructure investment during election years following the 2002 constitutional changes, security and defence remain the largest expenditure component as the coercive capacity of the state is central to its survival, particularly after the 2011 uprising and continuing crackdown. Competition over rents between different interest groups such as rival ruling family members and the tribal, ethnic and sectarian dimension to Bahrain’s socio-economic classes are influential factors in shaping policy and the state’s institutional structure.
As oil prices adjust to the slowdown in the global economy in recent years, Bahrain’s public debt is reaching alarming proportions against the backdrop of a domestic political impasse and increasing regional tensions. The state needs to curb its budgetary commitments by channelling spending towards capital spending and away from wasteful military expenditure and universal subsidies. We demonstrate that increasing government revenues through taxation is seen to be economically viable as panel data for five GCC states are used to estimate the potential for taxes. Nevertheless, austerity measures and tax policy reform require political concessions and fundamental changes to the social contract. Bahrain is swiftly approaching the frontier of a post-oil economy and the current fiscal policy model is unsustainable; therefore it is imperative for the state to reassess its rentier spending tendencies and begin to explore alternative sources of revenue.
- 'Bahrain’s Opportunity for Economic Reform'. Carnegie Endowment for International Peace. April 10, 2015.
- 'Fiscal sustainability in the Gulf: political and economic implications' with Ghassan Asbool, in Future Trends in the Gulf by Jane Kinninmont. Chatham House. Feb. 19, 2015.
- 'GCC Economic Integration: Fiction or Reality?' with Dr Hassan Hakimian. Khamsoon. Feb. 4, 2015.
- 'Jobs for the young? The GCC employment policy dilemmas' with Dr. Hassan Hakimian. The Middle East in London. Oct-Nov 2014.
- ‘Assessing Bahrain’s fiscal stance’. openDemocracy. September 30, 2014.
- ‘Bahrain’s attempts at subsidy reform’. openDemocracy. January 7, 2014.
- 'Fiscal sustainability in the Gulf: political and economic implications'. Future Trends in the Gulf, Chatham House. Feb. 20, 2015.
- 'Bahrain Debate: Rethinking the Conflict'. SOAS, University of London. Dec. 3, 2014.
- 'Employment Policy Dilemmas in the GCC: A Tale of Two Markets' with Dr. Hassan Hakimian. London and Middle East Institute. May 30, 2014.
- 'Bahrain's increasing energy dependence'. Gulf Research Meeting, University of Cambridge. July 2-5, 2013.
- 'Population trends and labour markets in Bahrain'. Brown International Advanced Research Institutes, Brown University. June 8-22, 2013.