Bahrain and Qatar look at controlling spending

Bahrain and Qatar should rein in state spending as part of plans to curb inflation, which is hovering near record levels in the Gulf region, officials said on Sunday.

"In totality, we want to see lower government spending," Rasheed Al Maraj told Reuters in reference to the 2009-2010 Bahrain budget.

He made the comments in an interview ahead of a World Economic Forum (WEF) conference in the resort of Sharm El Sheikh.

Like most other Gulf states, Bahrain's dollar peg forces it to track US monetary policy at a time when the Federal Reserve is cutting interest rates to help the United States economy ward off recession.

The Fed has reduced rates by 275 basis points in six moves since September 18.

Bahrain inflation hit 5.24 per cent in March on food prices and rents.

"We would like to maintain the growth [real GDP] level between 6.5 per cent and seven per cent," Bahraini Finance Minister Ahmed Al Khalifa said. "The challenge is to keep growth ahead of inflation," he said.

Citing the Qatari Amir's economic adviser Ibrahim Al Ibrahim, London-based Middle East Economic Digest (MEED) magazine said in its latest issue his country was carrying out a review of government spending.

"We are restructuring our government to make sure there is no inefficiency or weakness," Ibrahim said.

"The main thing is to convince [the government] you cannot do everything. If you do everything, it will be transferred into inefficiency and then, ultimately, inflation. We have to define priorities," he said.

Plagued by price rises, Gulf governments have boosted subsidies, introduced rent controls, raised state employee salaries, increased welfare payments and reduced import duties to offset the impact of inflation on their populations.

Although currency reform could help ease inflation, Gulf Arab states, bar Kuwait, have repeatedly said they would not revalue their currency pegs to the dollar.

"[Cutting government spending] is the most important policy tool available to them [Gulf countries] at the moment," Hany Genena, senior economist at Bahrain-based Gulf Finance House said. Qatar is trying to cap inflation at its current level of 13.7 per cent, below a peak of 15 per cent seen earlier this year, the country's finance minister told MEED.

"My government is trying to keep inflation at not more than it is today," Youssef Hussein Kamal said. "I think inflation is now 13.7 per cent from the peak of 15 per cent."

Inflation in Qatar, which has yet to publish first-quarter data, rose slightly to 13.74 per cent at the end of December, its second-highest figure on record, as rents and food prices surged.

Seventy per cent of the country's inflation was now driven by domestic factors, MEED said, citing Kamal.

Kamal said in March that a two-year rent freeze introduced at the start of that month and plans to increase housing supply would help curb inflation.

He said a 30 per cent rise in global food prices in 2008 and 2009 and an increase in building material costs would also keep inflation at about 13.7 per cent.

"If we compare inflation in Qatar with all the GCC, I think now we are at the same level," Kamal said."