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Bahrain Details Fiscal Balance Plan

General view of Bahrain World Trade Center is seen during early evening hours in Manama, Bahrain, May 2, 2020. Picture taken May 2, 2020. (Reuters)
General view of Bahrain World Trade Center is seen during early evening hours in Manama, Bahrain, May 2, 2020. Picture taken May 2, 2020. (Reuters)
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Bahrain Details Fiscal Balance Plan

General view of Bahrain World Trade Center is seen during early evening hours in Manama, Bahrain, May 2, 2020. Picture taken May 2, 2020. (Reuters)
General view of Bahrain World Trade Center is seen during early evening hours in Manama, Bahrain, May 2, 2020. Picture taken May 2, 2020. (Reuters)

Bahrain on Sunday gave details of a new economic growth and fiscal balance plan that pushes a zero-deficit target back by two years to 2024 from 2022 and increases value-added tax to 10 percent.

A government statement said the updated fiscal balance program also included reducing expenditure and project spend and streamlining distribution of cash subsidies to citizens.

The government also announced a strategic projects plan that would catalyze over $30 billion of investments and a regulatory reform package aimed at supporting $2.5 billion of foreign direct investment by 2023.

Kuwait, Saudi Arabia and the UAE, which in 2018 extended a $10 billion aid package to Bahrain, last month reiterated support for Manama’s budget plans, a move expected to help their neighbor in the debt capital markets despite delays in plans to fix its heavily indebted finances.

Last month Bahrain said that due to the coronavirus crisis last year, it had postponed the target year for a balanced budget to 2024 and announced plans to hike a value-added tax to boost state coffers.

The fiscal balance program - a set of reforms aimed at balancing the budget - was linked to the pledged $10 billion.

The ministers of finance of wealthier Saudi Arabia, Kuwait, and the UAE met with Bahrain’s finance minister on Oct. 19 to discuss Bahrain’s progress in improving its finances.

"The ministers welcomed the efforts made by the government of Bahrain in implementing the Fiscal Balance Program, and the progress made by the government despite the challenges posed by the COVID-19 pandemic," the three countries said in a joint statement.

"The Ministers affirmed their support to the Kingdom of Bahrain’s efforts in pursuing further reforms to enhance fiscal stability and strengthen sustainable economic growth."

Bahrain’s delaying of its fiscal balance program, which pushed back the zero-deficit target by two years, was seen as unlikely to deter investors from buying its debt due to expectations of continued support from richer Gulf allies, bankers and analysts have previously told Reuters.

Bahrain’s public debt climbed to 133 percent of gross domestic product last year from 102 percent in 2019, the International Monetary Fund said.

S&P forecasts Bahrain’s budget deficit, which was 16.8 percent of GDP last year, to average 5 percent between 2021 and 2024, excluding the impact of a possible hike in value-added tax.

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China State Media Warn Trump against Mutually Destructive Tariff War

A shopper walks with his purchases at Plaza Las Americas Mall near the US-Mexico border in San Ysidro, California, on November 26, 2024. (AFP)
A shopper walks with his purchases at Plaza Las Americas Mall near the US-Mexico border in San Ysidro, California, on November 26, 2024. (AFP)
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China State Media Warn Trump against Mutually Destructive Tariff War

A shopper walks with his purchases at Plaza Las Americas Mall near the US-Mexico border in San Ysidro, California, on November 26, 2024. (AFP)
A shopper walks with his purchases at Plaza Las Americas Mall near the US-Mexico border in San Ysidro, California, on November 26, 2024. (AFP)

China's state media warned US President-elect Donald Trump his pledge to slap additional tariffs on Chinese goods over fentanyl flows could drag the world's top two economies into a mutually destructive tariff war.

Trump, who takes office on Jan. 20, said on Monday he would impose "an additional 10% tariff, above any additional tariffs" on imports from China until Beijing clamped down on trafficking of the chemical precursors used to make the deadly drug.

The two superpowers are setting out their positions ahead of the former president's return to the White House. Trump's first term resulted in a trade war that uprooted global supply chains and hurt every economy as inflation and borrowing costs shot up.

Editorials in Chinese communist party mouthpieces China Daily and the Global Times late on Tuesday warned the next occupant of 1600 Pennsylvania Avenue to not make China a "scapegoat" for the US' fentanyl crisis or "take China's goodwill for granted regarding anti-drug cooperation."

"The excuse the president-elect has given to justify his threat of additional tariffs on imports from China is farfetched," China Daily said.

"There are no winners in tariff wars. If the US continues to politicize economic and trade issues by weaponizing tariffs, it will leave no party unscathed."

Economists have begun downgrading their growth targets for China's $19 trillion economy for 2025 and 2026 in anticipation of further tariffs promised by Trump during the election campaign, and are warning Americans to brace for an increase in the cost of living.

"For now, the only thing we know for sure is that the risks in this area are high," said Louis Kuijs, chief Asia economist at S&P Global Ratings, which on Sunday lowered its China growth forecast for 2025 and 2026 to 4.1% and 3.8%, respectively.

"What we assumed in our baseline is an across-the-board (tariff) increase from around 14% now to 25%. Thus, what we assumed is a bit more than the 10% on all imports from China."

Trump is threatening Beijing with far higher tariffs than the 7.5%-25% levied on Chinese goods during his first term.

"China already has a template for dealing with the previous US tariff policy," the Global Times quoted Gao Lingyun, an analyst at the Chinese Academy of Social Sciences in Beijing, as saying.

"Using counternarcotics issues to increase tariffs on Chinese goods is untenable and unpersuasive," Gao added.

Chinese President Xi Jinping told former Singaporean Prime Minister Lee Hsien Loong that China's economy would continue to grow and develop in the long-term during a meeting in Beijing on Tuesday after Trump's comments, state news agency Xinhua said.

Lee reportedly told Xi "no one should underestimate the Chinese people's determination for their nation to succeed and stand tall in the world," a remark which a separate Global Times piece said was "also meant for some people in (the) international community."

Profits at Chinese firms fell 10% year-on-year in October, data showed on Wednesday, showing how companies are struggling to remain profitable in an economy that is far more vulnerable to trade shocks this time around.

Economists in a Reuters poll last week expected additional US tariffs ranging from 15% to 60%. Most said Beijing will need to inject more stimulus to boost economic growth and offset pressure on exports.

TRADE WAR TWO

Trump previously said he would introduce tariffs in excess of 60% on Chinese goods.

The threat is rattling China's industrial complex, which sells goods worth more than $400 billion annually to the US and hundreds of billions more in components for products Americans buy from elsewhere.

His pick of trade lawyer Jamieson Greer as new US trade representative elevates a key veteran of Trump's first term trade war against China and points to a bruising four years for trade negotiators the world over.

Greer served as chief of staff to Trump's former US Trade Robert Lighthizer, the architect of Trump's original tariffs on some $370 billion worth of Chinese imports and the renegotiation of the North American free trade deal with Canada and Mexico.

The president-elect looks set to tear up that agreement on his first day in office.

Trump on Monday also pledged 25% tariffs on goods from Mexico and Canada, saying the US' neighbors were not doing enough to stop drugs and migrants crossing their borders.

But China can expect to bear the brunt of Trump's efforts to bring down the US' trade deficit and bring about the "manufacturing renaissance" he promised on the campaign trail.

"What the future will bring on this front is hard to say," S&P Global's Kuijs said. "There are many uncertainties. There is still a large increase to go to get to 60%."