Country Governance

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POGAR > Countries > Country Theme: Financial Transparency: Bahrain
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Articles 109-112 of the constitution outline budget approval procedures in the country. The government is to propose a budget to the Chamber of Deputies at least two months before the close of each fiscal year. The Chamber debates and in turn refers it to the Consultative Council. In the event that the budget is not enacted, the preceding budget is applicable until the new one is issued. Any disbursements which are outside the budget must be enacted by law. The Budget Law may not include additional taxes or tax increases or amendments to existing laws. Although non-tax revenues still account for two-thirds of the government's revenues, tax receipts steadily climbed, reaching 10% of GDP in recent years. Bahrain has no corporate or individual income tax but raises over half of it tax revenues from state-owned enterprises. Negotiations are under way with other members of the Gulf Cooperation Council to prepare a common data standard and fiscal accounting framework. Greater rationalization is needed to prepare for the monetary union expected in 2010. The authorities are also discussing a value-added tax as a means of broadening the tax base, if it can be coordinated with the other GCC members.

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Public Audit

A Financial Control Office is guaranteed independence by law and is to assist the Government and the Chamber of Deputies in controlling the collection and disbursement of state revenues. A Supreme Audit Commission works to provide transparency in Bahrain. In addition to this organization, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) is establishing accounting standards for Islamic banks. The constitution of 1973 stated that the country’s financial comptroller was to be responsible to the legislature and not to the government, though the 2002 constitution is unclear on this point.

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Public Procurement

The Committee for the Activation of the National Charter approved a new Public Tenders Law in September 2001. The law establishes a Council for Tenders to audit the allocation of government contracts. Members of the Council and their relatives are not permitted to bid for government contracts.

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The Bahrain Monetary Agency (Muassasat Naqd al-Bahrayn), established by Emiri Decree No. 23 of 1973, functions as a central bank. The BMA has consolidated the supervision and regulation of the financial sector (including banks, insurance, and capital markets) under one umbrella in order to control common risks across all components of the financial sector. Bahrain, already an international hub for offshore banking, is also at the forefront in developing Islamic financial services.

Bahrain has also taken an active regional role in combating money laundering. In November 2004 Bahrain was the meeting place for the founding of the international Financial Action Task Force’s regional Middle East and North African arm, and MENAFATF’s first plenary session assembled the representatives of 14 MENA states in Bahrain in April 2005.

The BMA issued new regulations for Islamic banks in January 2002 that take into account their special characteristics and accounting standards, as established by AAOIFI, as well as the Basle Committee's various international guidelines. Bahrain also hosts the General Council for Islamic Banks and Financial Institutions (GCIBFI), an umbrella organization for Islamic banks established in September 2001. The BMA and the GCIBFI, under the chairmanship of Sheikh Saleh Kamel, stressed that no Islamic banks were caught in the backlash against international terrorism after September 11, 2001. The BMA issued orders to freeze the assets of any individual or organization suspected of terrorism.

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In April 2000 a Supreme Council for Economic Development was established under the chairmanship of the Prime Minister; and this was later transformed into the Economic Development Board (EDB) in April 2001. Its stated priorities include the privatization of some state-owned industries and economic diversification with in the aim of providing more jobs for Bahraini nationals. As a result of a drastic reduction in Bahrain’s oil production, the government has realized that it can no longer depend on oil exports to keep its economy going and as a result has been very serious in privatizing state enterprises.

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Stock Exchange

The Bahrain Stock Exchange (BSE), founded by Amiri Decree 4 of 1989, commenced operations in June of that year with 29 listed companies. The Bahrain Monetary Authority took control of all financial sectors, including capital markets, in 2002, and consequently supervises the BSE. In 2004 it took steps to complement the regulatory and supervisory framework for this sector in line with the international standards set by the International Organization of Securities Commissions. It issued the Disclosure Standards for companies listed in the Bahrain Stock Exchange as well as the Directives relating to the prevention and prohibition of Money Laundering at the Bahrain Stock Exchange. New Securities Regulations were also under discussion with industry participants. Earlier the BSE implemented agreements with neighboring similar regional agencies such as the Muscat Securities Market in 1995, the Amman Financial Market in 1996, and the Egypt Capital Market Authority in 1997. Moreover, in 1996 the Bahrain, Muscat, and Kuwait Stock exchanges signed agreements to cross-list shares. Furthermore in 1997, an agreement with the Kuwait stock exchange was signed to enhance exchange between the two countries.

This stock exchange listed 38 local and 7 foreign companies valued at BD 5.1 billion ($13.5 billion) at the end of 2004. The turnover ratio of traded stock was only about one per cent in 2004, but Bahrain was also pioneering Islamic bond issues (sukuk).

In 2004 the Bahrain Monetary Fund issued the “Guideline for the Issuing, Offering And Listing of Islamic Debt Securities” in the Bahrain Stock Exchange. Bahrain is positioned as the leading regional center for listing and trading in Islamic securities. The BSE is also seeking further listings from “Private and family-owned businesses with a future vision.”

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Financial Institutes

The Bahrain Center for Studies and Research is a government operated center that has been branching out recently to industry and business related issues. The Center is mostly concerned with public related initiatives and projects, but as privatization and investment have become increasingly important, the Center’s involvement in the private sector has increased.

The Bahrain Banking and Finance Institute offers training for Bahrain's many bank employees.

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International Transparency Standards

Bahrain intends to join the IMF’s General Data Dissemination System as it reorganizes its dispersed databases, in preparation for monetary union with the other members of the Gulf Cooperation Council.

Both Moody’s and Standard and Poor’s have rated the country.

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