Moody’s lowered the Bahrain’s long-term issuer rating to B2 from B1 and maintained a negative outlook. It has also lowered Bahrain’s long-term foreign-currency bond ceiling to Ba3 from Ba2 and long-term foreign-currency deposit ceiling to B3 from B2. The short-term foreign-currency bond and deposits ceiling remain unchanged at Not Prime. Bahrain’s long-term local currency country risk ceilings were lowered to Ba2 from Ba1.
This downgrade comes despite the announcement of a recently discovered large off-shore oil reservoir and the assumption that the kingdom’s Gulf Cooperation Council (GCC) neighbors will provide some financial support, consistent with a broad statement issued on 27 June and without which Bahrain’s creditworthiness would be significantly weaker.
The negative outlook reflects the risk that financial support from the GCC is not timely and comprehensive enough to maintain Bahrain’s credit profile at B2 through a series of forthcoming debt repayments, including a $750 million sovereign sukuk repayment due on 22 November 2018. Moreover, with regards to the off-shore oil reservoir, Moody’s cannot ascertain at the current stage of exploration with any degree of confidence how much of the announced 80 billion barrels of oil-in-place could be technically recoverable and at what cost. In any case, the government does not expect oil production from the new field that would materially improve Bahrain’s fiscal and external balance to start before early 2023.
A credit rating is an assessment of an entity’s ability to pay its financial obligations. the ability to pay financial obligations is referred to as “creditworthiness.” Credit ratings apply to debt securities like bonds, notes, and other debt instruments (such as certain asset-backed securities) and do not apply to equity securities like common stock. Credit ratings also are assigned to companies and governments.
When making investment decisions, credit ratings and any related rating and industry trend reports can be helpful tools, provided they are used appropriately. Credit ratings may offer an alternative point of view to your own financial analysis or that of your financial adviser.
A downgrade to junk status is associated with high risk. Therefore, high borrowing costs. For governments it means allocating more to debt servicing costs (interest payment). Less money will be available for social grants, investment priorities, creating jobs and ultimately reducing the GDP growth potential of the country. More interest payment also crowds out other critical spending. Social services is an example. This is the main reason why a sovereign has to avoid being downgraded into a junk, or sub-investment grade.
Bahrain was downgraded to junk status by Moody’s back in March 2016 and has been sliding down the scale ever since. With this most recent downgrade it needs to go up five positions before beings considered as investment grade.
The recent downgrade to B2 reflects Moody’s view that the credit profile of the Bahraini government will continue to weaken materially in the coming years. The rating agency expects Bahrain’s government debt burden and debt affordability to weaken further significantly over the coming two to three years.
Despite a rise in oil prices, the government’s budget deficit will oblige it to constrain spending, which will moderate growth in the non-oil economy. Higher borrowing costs due to rising interest rates, and reduced subsidies will weigh on corporate and household income, putting mild pressure on loan quality. In addition, rising government debt is reducing the government’s capacity to support the country’s banks in a crisis.
Moody’s expects economic growth to slow to 2.8% in 2018 from 3.9% in 2017 as the government constrains spending, due to its large budget deficit. As a result, credit growth will decelerate slightly to 5%-7% from 8% in 2017.
Moody’s downgraded Bahrain’s issuer rating two notches from Ba2 to B1 last year despite the government’s steps towards economic reforms, including lifting some subsidies from fuel and utility tariffs, government restructuring, and increasing fees on government services. According to Moody’s, these steps were not considered to be aggressive enough in light of the financial challenges.
Yet again, the Bahraini government has not announced any new significant policy measures and Moody’s believes that the lack of new policy announcements in the face of rising liquidity pressures underscores very limited policy flexibility and weaker institutional strength than previously assessed.
The implementation of the value-added tax, originally planned for 2018, has been postponed until next year. Meanwhile, in January all new fiscal austerity measures were suspended until parliament agrees on a new system to compensate citizens for the higher cost of living implied by the measures. The most significant fiscal measure implemented this year is the excise tax on soft drinks and tobacco products, which is expected to yield around 0.4% of GDP in extra revenue. By comparison, the government expects the overall spending to increase by close to 1% of GDP.
| Country | Moody’s Long-Term Credit Rating |
| Kuwait | Aa2 |
| UAE | Aa2 |
| Qatar | Aa3 |
| Saudi Arabia | A1 |
| Oman | Baa2 |
| Morocco | Ba1 |
| Jordan | B1 |
| Tunisia | B1 |
| Bahrain | B2 |
| Lebanon | B2 |
| Egypt | B3 |
| Iraq | Caa1 |
Comparison of Moody’s Rating for Arab Countries
While Moody’s acknowledges the fact that Bahrain’s economy is fairly diversified, with non-oil sectors contributing close to 80% of nominal GDP on average since 2010, it is wary that the government shows no indication that it will use this economic base to materially diversify its revenue base to reduce its reliance on oil-related income which will continue to suffer from weak oil prices in the coming years. Non-oil economic performance will be supported by access to funding under the Gulf Development Fund. While these funds are not part of the Bahraini government’s budget, they will support the government in reducing investment expenditure without unduly harming growth.
Bahrain’s net asset international investment position, its stock of foreign assets minus foreign liabilities, which stood at 74.5% of GDP in 2016 and 87% of GDP in 2017, provides some form of external buffer. However, Moody’s expects it to decline significantly because external liabilities will increase at a much faster rate than the country’s assets. More importantly, foreign exchange reserves at the Central Bank of Bahrain are low and very volatile, covering only around one month of goods and services imports. Following a pause in the dissemination of this data in 2015, the time series disclosed by the central bank more recently shows a material decline in foreign exchange reserves over the last two years, averaging only around $2.5 billion in the first quarter of 2017.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook reflects continued downside risks to the B2 rating, which manifest themselves in heightened government and external liquidity risks. Given the expected large fiscal deficits and sizable amortization payments falling due over the coming years, Bahrain’s government gross financing needs will reach more than 30% of GDP over the next two years.
The further deterioration in the government’s balance sheet, combined with continued external debt issuance from other countries in the region, will lower the supply of external funding. In addition, in light of rising global interest rates, the cost of funding will go up.
Moody’s expects that the combination of these two factors heightens the risk that finance is obtainable only at much less affordable rates for Bahrain, or potentially reduced amounts. Despite the 27 June announcement stating that an “integrated program … will soon be announced”, there has been no further communication to date, either from the Bahraini authorities or from Saudi Arabia (A1 stable), the UAE (Aa2 stable) and Kuwait (Aa2 stable).
As a result, there is a risk that such support may not be sufficient to stabilize Bahrain’s credit metrics and in particular allow the government to meet its debt obligations while avoiding prohibitively expensive costs.
WHAT COULD MOVE THE RATING UP/DOWN
Given the negative rating outlook, any upward movement in the rating in the foreseeable future is highly unlikely. Moody’s would likely change the outlook to stable if a detailed and credible announcement of GCC financial support was made and if such support raised the probability that the government would undertake comprehensive fiscal consolidation which would materially narrow non-oil fiscal deficits and stabilize its debt burden. Such a policy announcement would probably enable Bahrain to regain access to the international capital markets, diversifying its financing sources. Combined, the availability of GCC financial support and regained market access would provide some scope to rebuild the central bank’s foreign exchange reserves.
Moody’s would likely downgrade Bahrain’s rating in the event of continued deterioration in fiscal and external metrics amid a prolonged absence of a detailed announcement from the GCC countries about the group’s commitment to support Bahrain’s government and external financing needs. Possibly related, a downgrade would also likely occur if the sustainability of Bahrain’s pegged exchange rate regime was increasingly threatened.
Pondering the idea of whether or not it’s time to ask for professional help for your business. Well, here are the top 5 reasons why you should hire a business consultant.
- Consultants are the leading experts
Consultants are often the leading experts in the fields they work in, so they will provide you with the best teaching and implementing practices. They have academic and theoretical expertise, and they’ve also worked directly with leading organizations to implement change. For example, if you want best practices in areas such as marketing and IT, then consultants are the best source available. Why try to invent a best practice when consultants have already implemented some with multiple clients.
- Handle critical changes
Consultants are experts at fostering change in organizations, so if your company is diffused with internal spar concerning imminent changes, hiring in a consultant can break the impasse. Consultants know that they’re often brought in for political cover and will shoulder blame for unpopular changes such as reducing head count and other cost-cutting measures.
- Different perspective
Consultants have a different perspective on your company, so having an outsider come in and bring new ideas can be extremely helpful. Sometimes your in-house people are too close to your business and don’t have the perspective to examine the larger picture within your market, at the other hand consultants can share valuable insights that enhance your internal creative thinking.
- Get high quality training
Consultants are born trainers, so they’re the best choice to do a training course or presentation for your organization. Consultant combine practice and theory, and this can deliver high value to your organization. You can hire a consultant to share knowledge about almost anything.
- You don’t have the brains resources
If you don’t have enough brain resources, then you should rent a brain, so hiring a consultant for a project or on a temporary basis can fill the gap until a full-time internal person is hired. Hiring a business consultant won’t make him a full-time employee, so breaking off the relationship is going to be very easy and cost-effective.
We are a leading business consultancy based in Bahrain and providing professional business consultancy services to clients all over the GCC. If after reading this article you discover that you may need help with your business, it would be our pleasure to assist you.
Some people believe that business plans are merely guesses made about the future of a business that we know little or nothing about. However, statistics indicate that businesses, activities, and even individual actions have a better chance of succeeding if they start out with a plan.
Each business should have a starting point and a destination through its journey, putting in mind that even the best planned route may require some changes regularly. A business plan is the itinerary.
So let’s start out with the basics and work our way from there.
First of all, what is a Business Plan?
A business plan is a document that includes details about the product/service, all the business objectives, milestones, individual responsibilities, dates and deadlines, and budgets to achieve the business’s goals in terms of growth and profit.
A business plan is extremely important for every business whether it’s new or old. It assists the business owner to take informed decisions and paves the way to success while providing interested parties with insights about all aspects of the business. A business plan should include information such as:
- A detailed description of the product or service,
- Financial projections or forecasts for the next three to five years,
- Detailed information about employees, processes, materials, and tools,
- and a market study covering customer perceptions and preference, competitors’ analysis, threats and opportunities…etc.
Why do we need a Business Plan?
Many businesses have shut down because they have jumped directly to starting up their operations without having a proper business plan. Having a business plan is crucial for every business whether they are big or small, new or old. It ensures that business owners do not spend money, time, or resources unnecessarily on businesses or projects by initially checking their viability.
As aforementioned, a business plan is not just for startup businesses, it can also be used by existing businesses. An existing business should update its business plan regularly to increase growth and benefit from anticipated opportunities in the market. Since the only constant in life is change, markets inevitably change as well. Therefore, it is important to have a robust business plan and conduct regularly management meetings to adjust it according to market needs.
What does a Business Plan include?
At a minimum, a Business Plan should include the following:
- Company Overview
- Product/Service Description
- Market Analysis
- Competitive Analysis
- Marketing Plan
- Technical Plan (Operating)
- Tactical Plan (Management)
- Financial Plan
What are the main benefits of a Business Plan?
A Business Plan can provide numerous benefits to a business. These benefits can be summarized as follows:
- A Business Plan helps business owners to remain focused on business goals, objectives, issues, and opportunities along with resources.
- It permits business owners to be more adaptive to the market in which they operate as it forces them to research and analyze industry trends, identify current and future challenges, weight competitors, and understand where their business stands in the market.
- Regularly updating a Business Plan allows a business to become more efficient by eliminating non-value-adding processes.
- A Business Plan is also crucial to estimate the amount of capital or funds needed to start the business and where the money will be allocated.
- Finally, a Business Plan ultimately helps mitigate risks of failure.
Is a Feasibility Study the same as a Business Plan?
Although a Business Plan might be mistakenly confused with a Feasibility Study, there are subtle differences between the two.
The following table explains the main difference between a Feasibility Study and a Business Plan:
|
Business Plan |
Feasibility Study |
|
It is created after the success of a Feasibility Study. |
It is established first to find the workability & profitability of a business. |
| More of tactics and strategies. | More of calculations, analysis and estimations. |
| Deals with growth plan and sustainability of a business. |
Deals with viability of a business. |
For more help on developing your Business Plan for your next big venture, feel free to contact us at any time.
In our previous articles, we listed the main reasons behind the deficit being faced by Bahrain’s Social Insurance Organization and we also reviewed the solutions being discussed by the Shura Council and Parliament. In this article, we are going to propose alternatives that could potentially resolve the issues faced by the Pension Fund once and for all.
The alternatives we are going to propose are inspired by experiences of other pension funds from different parts of the world, however, it is important to highlight that these are merely ideas that need to be validated by a detailed actuarial study.
Alternative 1: Contribution Brackets
Currently, contributions are fixed at 18% regardless of the salary, 12% coming from the employer and 8% from the employee. What if contributions were set at different rates according to the employee’s salary? In other words, the higher the salary, the higher the contribution that will have to be paid.
Alternative 2: Copy the Chinese
In China, there is no such thing as a fixed contribution rate for their pension fund. Instead, each year, the pension fund calculates the amount of pension salaries that will have to be paid and a pension contribution rate is calculated accordingly. This ensures that contributions will always cover the pension obligations that the fund has to meet.
Alternative 3: The Benefits Menu
The pension benefits in Bahrain, and indeed in the GCC, are very generous. Pension salaries do not cease by the passing away of the pensioner. In fact, pension payments are still made to widows and widowers, children up to the age of 21, children in full time education to the age of 26, children unable to earn a living, daughters that are unwed, fathers that were dependant on their deceased child, mothers that are divorced or widowed, brothers to the age of 21, sisters if unwed, and even grandchildren if their father is deceased. This adds multiple new dimensions to the pension plan which would make it difficult to forecast a viable contribution rate.
On the other hand, in case the employee was given the option of selecting the benefits that he wishes to extend to his family and in return set a contribution rate for himself according to these benefits, this would take the load off the pension fund and possible even the employee. A participant who is an only child for instance would not need to have the benefit of pension payments made to his brother or sister and conversely, would not need to pay the additional percentage of contribution affiliated with extending such a benefit.
Conclusion
Bahrain’s SIO is in a difficult predicament, however, it is one that can be resolved with a strong will and sound actuarial advice. We find that both the Parliament and the Shura Council are acting with haste, probably too quickly if their intention is to resolve the issues faced by the pension fund from the root cause. Perhaps the best advise that can be extended to the respectable MPs and Shura Council members is to hire actuaries to conduct multiple independent studies and come up with recommendations to help them wade through the difficult decisions that they will need to make. Until then, we can be sure that any recommendation made regarding this matter will only postpone an inevitable crisis or even worse, create a new one in a different segment of the economy.
Written by:
Munther Al-Arayedh, MBA, CPA
Microsoft Planner, where have you been all my life?!
Tired of following up on your team to perform their committed tasks despite the constant reminders and follow up emails? Do you find to-do lists, post-it notes, and calendar reminders ineffective? Probably you have an Excel sheet where you keep track of all the tasks that you assigned your team? If this is the case, this article is for you.
Any manager would tell you that keeping track of their subordinates’ tasks takes a lot of effort. Some use small notepads or diaries that they carry around with them everywhere. Others use post-its or Excel sheets. Well, have I got a treat for you?!
Office 365 is full of hidden treasures that are, quite frankly, not being marketed effectively by the Microsoft team. I stumbled upon this gem while trying to setup a new group on Microsoft Teams to share the Excel Sheets and MS Project files that we use to keep track of our ongoing projects. We use MS Project to manage the big complex projects however we find it easier to keep track of the granular tasks on Excel Sheets – until we discovered Planner.
Microsoft Planner
Wow! That was my first reaction when I first used the app. It literally took seconds to install on Teams and it was so intuitive that our new-hire was able to convert all our Excel data onto it within minutes. It lists all our small projects and sales leads in a single Kanban view with all the tasks listed neatly below each header. This view can be changed to show tasks for each employee, or tasks according to their due dates or status. And if that isn’t enough, summary charts showing the total number of tasks for each employee along the number of late and open tasks overall and for each employee are readily available in the Charts view.
Microsoft planner
The beauty of the app isn’t just its visual appeal. I literally fell in love with it when I received an email notification the day after we installed it telling me about all the tasks that were due today and those that are due in the coming few days. Wow! These are the small tasks that are usually forgotten such as following up on quotes that have been sent or taking an online training course. It wouldn’t be practical to include them into MS Project and are quite difficult to keep track of because, well to be frank, they are not urgent.
Microsoft Planner
I have been using Microsoft Planner for about a week now. It is an excellent tool that takes care of the headache of following up on people and allows you to focus on more important things. It also comes with a free mobile app that is even better than the desktop application or web portal – surprizing right?
In my opinion, Microsoft Planner is an excellent tool for a small business owner, a department head, or even a project manager. It is not to be compared with MS Project though. These are two very different programs despite their similarities. MS Project has much more features that help you calculate and manage every single aspect of your project which is exactly why it is not suitable for keeping track of the tiny day-to-day tasks that MS Planner is designed to handle.
Of course, there is some room for improvement. For example, tasks cannot be linked as predecessor and successor like MS Project, and the graphical reports can take a little bit of getting used to. However, in case you need a more powerful project management tool, probably Planner is not the best choice. On the other hand, if you need something to keep track of the mundane tasks that often go forgotten, then look no further than Planner.
Inventory management is so critical if you want to run a profitable restaurant. A restaurant’s profitability is calculated using the cost of goods sold, so it is important that your calculated inventory value be as accurate as possible. This is where the inventory valuation method comes to surface. Choosing the right method can make the process of valuation and managing your inventory easier and reflect better profitability.
Inventory valuation Methods
As a restaurant owner you have only three options to evaluate your inventory:
- First-in, First-out (FIFO)
- Last-in, First-out (LIFO)
- Weighted Average Cost (WAC)
Now the question is what is the best method to go for? Keep reading to find out…
First-In, First-Out (FIFO)
This technique is used by most restaurants. FIFO assumes that the goods purchased first are the goods sold first. As a result, the remaining inventory consists of the most recent purchases and is accounted for at the good’s current cost.
FIFO is the best inventory valuation method for restaurants because it decreases waste and preserve freshness.
As we can imagine, inventory in a restaurant has a short demand cycle. At restaurants, goods purchased earliest with the nearest expiration date will be consumed first to avoid spoilage. That is why restaurants prefer FIFO as it matches the actual flow of food in the kitchen.
Why FIFO?
In an inflationary environment where costs continue to rise, using FIFO will allow the older, lower-priced goods to leave first and the more expensive, newer goods to be kept as inventory.
The conclusion is a lower cost of goods sold and higher net income.
One more added value of FIFO is that managers can access real-time inventory counts and depletion instantly through restaurant management software.
The only drawback when using the FIFO method is that there is often a mismatch between costs and revenue since older and often lower costs are associated with current revenues.
Last In, First Out (LIFO)
LIFO is not commonly used in restaurants. LIFO values inventory on the assumption that the goods purchased last are sold first at their original cost. So, the oldest goods usually continue to remain as ending inventory. Many goods would expire before being used. That is why this technique is typically used with non-perishable commodities.
When the price of goods increases, those newer and more expensive goods are used first according to the LIFO method. This increases the overall cost of goods sold and leaves the cheaper, earlier purchased goods as inventory. A higher cost of goods sold will ultimately yield lower restaurant profit margins and net income.
FIFO method does not always provide an accurate valuation of ending inventory. Since the oldest goods tend to be stored repeatedly as inventory, a significant portion will likely become obsolete before use.
Weighted Average Cost (WAC)
With this method, the goods receive the same valuation regardless of when and at what cost each was purchased.
Instead, the total cost of items in inventory is divided by the number of units to yield the weighted average cost per unit.
It can be represented mathematically like this:
WAC = (Total Cost of Sitting Inventory) / (Number of Units)
This technique is more popularly used in situations where it is impossible to determine the cost of a single item because they are so integrated and commoditized. When comparing WAC to FIFO and LIFO, the WAC technique generates a valuation between that of FIFO and LIFO. Using WAC, the value assigned will represents a cost between the first and last purchased items.
Pros and Cons Summary
| Method | Pros |
Cons |
|
FIFO |
|
|
|
LIFO |
|
|
|
WAC |
|
|
FIFO, LIFO, and WAC are all accepted methods for valuation, but restaurants should select the one that best fits their reporting and management styles. The easiest way to monitor your products is by using back office software that links with your point of sale system and provides live tracking of your inventory whenever you need it.
In our previous article, we listed the main reasons behind the deficit being faced by Bahrain’s Social Insurance Organization. We are now going to discuss the remedies being discussed by Parliament and the Shura Council to resolve the issue.
In order to put things into perspective, we need to get some figures from the SIO’s latest statistical report which could be found on their website. According to the report, the average age of insured Bahraini males working in the private sector is 34 years old and their average salary is 729BD. The average age of private sector employees going into retirement is 48 years old and their average pension is 638BD. Therefore, in order to make things simple, let’s take the example of Mohammed who is a 34-year-old Bahraini male earning a salary of 729BD. Mohammed already has 7 years of service under his belt and is planning to retire at the age of 48 and is expected to receive a monthly pension of 638BD. He is expected to live until the age of 78 so he will be receiving a monthly pension for a total of 30 years.
Bearing in mind that the SIO receives 18% average salaries as contributions to the retirement plans (12% from the employer and 6% from the employee – 1% from the employee goes to the unemployment fund), how many employees are required to cover Mohammed’s retirement salary?
To answer this question, we simply have to bestaucasinosonline.com multiply the average salary by the percentage of contributions for 20 years and then divide Mohammed’s monthly pension for 30 years by the resulting figure.
729 x 18% x 12 x 20 = 31,492.800 BD
(30 x 12 x 638) / 31,492.800 = 7.293 employees
So we will need 8 employees to cover the pension that is going to be paid to Mohammed. Accordingly, we should expect the number of contributors to be eight times the number of pensioners in Bahrain. The reality of the matter is however, we have 92,657 registered contributors in Bahrain while there are 30,477 pensioners. This is a ratio of roughly 3:1 rather than the required 8:1.
To solve this dilemma, we should explore all viable options.
Option 1: Increase Pension Contributions
Let’s assume that we decide to increase pension contributions from the current 18%. How much should we increase it by?
Solving for the pension contribution in the previous example, we get the following equation:
(30 x 12 x 638) / (729 x ? x 12 x 20) = 3 employees
The required contribution percentage would be 43.75%!
Taken on its own, this is clearly not a viable option.
Option 2: Reducing the Pension Salary
Parliament and the Shura Council are currently discussing reducing the pension salary by 10%. The proposed schedule for pension salaries according to the number of years in service is tabulated below.
| Years of Service | Current Pension Salary as a Percentage of Employee Salary | Proposed Pension Salary as a Percentage of Employee Salary |
| 20 | 40 | 36 |
| 25 | 50 | 45 |
| 30 | 60 | 54 |
| 35 | 70 | 63 |
| 40 | 80 | 72 |
Now let’s try to calculate the pension that the SIO’s fund will be able to sustain in light of the current challenges.
Solving for the pension salary in the Mohammed’s example results in the following equation:
(30 x 12 x ?) / (729 x 18% x 12 x 20) = 3 employees
Solving for the pension salary we find that it will have to drop from 638BD to 262BD! This is a drop of around 59% whereas the proposed reduction is merely 10%. Clearly, this won’t be enough to cover the deficit if implemented on its own.
Option 3: Increase the Minimum Required Years to Retirement
This option, although clearly not preferred by employees, could have the greatest impact. Not only will we increase contributions, but we will also reduce the years of pension payments. Solving for the increase in number of years generates the following equation:
((30 – ?) x 12 x 638) / (729 x 18% x 12 x (20 + ?)) = 3 employees
The resulting increase in number of years is 11. So instead of allowing Mohammed to retire at the age of 48, he will only be able to retire at the age of 59 – basically eliminating the option of early retirement. This is inline with what the Shura Council and Parliament are discussing however it will undoubtedly increase the unemployment bestaucasinosonline.com/nz/ rate in Bahrain since the rate of new retirees is positively correlated to the number of new job vacancies in the market.
The Easy Way Out
There is always the option of having the government bridge the gap in deficit, the question that has to be asked is how? The slump in oil prices hit Bahrain hard and the small island kingdom is now facing the very real risk of devaluating its currency as its foreign exchange reserves are currently covering only around one month of goods and services imports.
Sure, there might be a light at the end of the tunnel with the prospects of shale oil over the horizon. However, until that is certain, Bahrain will depend on the soon-to-be introduced VAT in order to meet its financial obligations, develop its infrastructure, and even finance its shale oil refinery. Should the government start diverting VAT revenue towards financing collapsing schemes such as the SIO’s pension fund would exhaust this resource and force us all to forego the many benefits that would have been gained.
Conclusion
Poor funding positions, insufficient contributions, expensive benefits and increasing economic and demographic pressures mean that the current pension scheme is unsustainable. Pension benefits are generous and contributions have been set years ago without actuarial consideration. All of the remedies presented in this brief study are bitter to say the least and would only put a band aid on a gushing wound. The pension fund is in dire need for reform and the government has 3 levers to play with in their path to reform:
- Increase contributions
- Reduce benefits
- Delay benefits
All options are equally difficult to implement without social, political, and financial implications.
In our next article, “Bahrain’s Social Insurance – Part 3: Complete Overhaul”, we will discuss out-of-the-box solutions that have not been discussed by the legislators to resolve the Pension Fund problem.
Written by:
Munther Al-Arayedh, MBA, CPA