The Bahrain House of Representatives approved a Gulf Arab agreement to introduce a 5% VAT on 1st January 2019, after a royal decree ordered parliament to hold an extraordinary session on Sunday, according to Reuters.
The move came a few days after Bahrain’s neighbors Saudi, UAE and Kuwait offered a $10.23 billion aid package to avoid the risk of a debt crisis in the country, which was also tied to fiscal reforms, such as VAT.
The bill is yet to be approved by the parliament’s upper house, which is expected to hold a similar session later this week.
The Gulf state released a 33-page fiscal plan on Friday to fix its debt-burdened finances and essentially abolish its budget deficit by 2022.
The UAE signed a financial cooperation agreement worth $3.4 billion with the Government of Bahrain to support the financial stability of the country and stimulate its economic growth.
The contribution will be managed by Abu Dhabi Fund for Development (ADFD), the leading national entity for development aid.
The UAE’s commitment, along with those of Saudi Arabia and Kuwait, is distributed in equal shares disbursed over five years (2018-2022).
The Arab Monetary Fund (AMF), has been designated as the program consultant.
The contribution from the UAE falls within the framework of the Bahraini government’s approved fiscal balance program, which aims to achieve a balance between the government revenues and expenditure in accordance with performance criteria and stipulated indicators for implementation by 2022.
The agreement was signed by His Excellency Obaid bin Humaid Al Tayer, UAE Minister of State for Financial Affairs, His Excellency Sheikh Ahmed bin Mohamed Al Khalifa, Bahraini Minister of Finance, and Dr. Abdulrahman bin Abdullah Al Humaidi, Director General and Chairman of the AMF. Several senior officials from the Bahraini government were in attendance.
His Excellency Obaid bin Humaid Al Tayer said that the UAE government’s contribution to the fiscal balance programme is based on the strong historic bonds of friendship that exist between the UAE and Bahrain and is in line with the directives of the UAE President His Highness Sheikh Khalifa bin Zayed Al Nahyan, His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President of the UAE and Ruler of Dubai, and His Highness Sheikh Mohammed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces.
His Excellency Al Tayer added that this contribution is a result of the brotherly ties, constructive cooperation, and mutual goals the countries of the Gulf Cooperation Council (GCC) share, and is aligned with the directives of the UAE’s wise leadership to support the financial and economic stability of Bahrain.
He also reiterated that the UAE is keen to support the people of Bahrain and help them overcome financial challenges through implementing sustainable development plans to ultimately achieve long-term prosperity.
For his part, His Excellency Sheikh Khaled bin Abdulla Al Khalifa extended his appreciation for the support from Saudi Arabia, UAE, and Kuwait, pointing out their unwavering commitment across various levels.
His Excellency Sheikh Ahmed bin Mohamed Al Khalifa presented the details of the financial balance programme, explaining the initiatives that aim to reduce the government’s operating expenses and enhance the efficiency of government spending. He added that this programme will require all parties to work together in achieving financial sustainability for the government.
Speaking on the occasion, His Excellency Mohammed Saif Al Suwaidi, Director General of ADFD, said: “The AED12.5 billion contribution from the UAE, managed by ADFD, will support the Bahraini government in realizing its vision for development and progress, in addition to ensuring a balance between revenues and expenditure in the next five years.”
Al Suwaidi added: “We are proud of the strong synergies ADFD shares with the Bahraini government. The Fund’s contribution to the development of Bahrain dates back to 1974 when it managed a UAE government allocation of $2.86 billion towards the implementation of 26 development projects in Bahrain.”
Notably, ADFD has also coordinated the 2012 UAE government grant allocation of $2.5 billion as part of the Gulf Cooperation Council (GCC) development programme for Bahrain.