The shrinking dinar

THE spiralling cost of living in Bahrain has been put under the spotlight by Ernst & Young, one of the world's largest professional services firms and highly-reputed auditors.

The research clearly outlines the shrinking value of the dinar in our hands. The study was led by the Business Management Advisory Solutions Team of Ernst & Young and was revealed exclusively to GulfWeekly.

The report confirms the disturbing fact that crucial expenses that are part of every household - rents, education, food and groceries, transport and medical care - have spiralled in Bahrain in recent years.

With the exchange rate peg maintained at 0.376 Bahraini dinar to the US dollar, expatriates' saving potential has also taken a knock.

Mr Y Sethuraman, director, Ernst & Young, said: 'The study is part of a series of internal documents which are prepared either for the consumption of the firm or for our clients.'

It comes just days before senior policy makers and business leaders meet in Bahrain to discuss strategies on how best to reign in unprecedented price increases.

Among those present will be officials representing chambers of commerce from across the Gulf, the European Union and the International Monetary Fund.

THE_Ernst & Young inflation report has analysed the housing and education costs incurred by some leading companies in Bahrain which offer these perks to the families of their senior expatriate employees.

Its study of recent trends states: 'Annual rental costs have increased by approximately 20 to 25 per cent from the 2005/06 rates for comparable housing units in 2007.

'Annual fees increased by 10 per cent in the British School of Bahrain and Bahrain School and by 14 to 21 per cent at St Christopher's School.

'The latest published Consumer Price Index (2006) has shown an increase of 2.1 per cent over 2005. The prices of personal care, household expenses, medical expenses and food and beverages increased by nine, four, three and two per cent respectively. And, the consumer price index is projected to increase by 3.5 per cent in 2007.

'The Bahraini dinar has depreciated by about 10 to 15 per cent, when compared to average exchange rates in 2006, against selected currencies.'

The report says that the company sourced its information through the relevant schools, real estate agents and its employees. Costs of household essentials have been obtained from market surveys and other relevant data on inflationary rates and trends have been acquired from 'reliable and authorised sources'.

It looks closely at the rental costs in a number of compounds in Janabiya, Jannusen, Budaiya and Saar.

Current accommodation costs for leasing a three-bedroom semi-furnished villa on Budaiya Highway near Jawad is around BD850 per month. Add another bedroom, a private garden, common swimming pool, two car parks and a staff quarters and the costs could go up to BD2,100 for a brand new villa in Saar.

Executives willing to move a little further off near the Saudi Causeway in Jasra will find a new five-bedroom villa with all amenities and a private pool for approximately BD1,800 a month.

Trends suggest an annual increase of rental costs by approximately 20 to 25 per cent in the past two years.

The general Consumer Price Index (CPI) in the country, an index measuring the average price of consumer goods and services purchased by households, also shows an upward trend.

The report shows an increase of 47.13 per cent for the cost of a selection of fruits, vegetables, meat, fish and grocery items over a period of 10 years.

With the Bahraini dinar pegged to the US dollar, the recent depreciation in the value of US dollar has had a significant impact on the value of the Bahraini dinar when compared to other global currencies.

On Sunday, one Bahraini dinar could be converted to £1.31 compared to £1.45 in 2004. In euros it could be exchanged for Û1.69 as against Û2.14 in 2004 and for Indian rupees 107.357 as against an average of Rs120.34 in 2004.

The Institute of International Finance, a Washington-based group that represents the world's largest banks, reported that inflation in the GCC countries had reached a 15-year high of 5.3 per cent in 2006.

It also said that economic growth in the region is expected to pick up to almost eight per cent this year from 5.2 per cent in 2007.

Global Investment House KSCC, a Kuwaiti investment company licensed by the Central Bank of Kuwait, has recently published a report on Bahrain Economic and Strategic Outlook.

This global research contributes increasing rents as the most important factor of price rises in the kingdom.

The report said: 'High oil prices and the resultant economic boom in the region have attracted higher working population to the kingdom. With limited space available, there has been a consistent upward trend in rental rates, having a multiplier effect on all other sectors. This has been a significant domestic driver of price rise.'

On March 24, senior economists, private business leaders and chambers of commerce officials from around the GCC countries will converge in Bahrain to attend the conference organised by the Bahrain Chamber of Commerce and Industry entitled, 'The phenomenon of price rises in Gulf states: causes and future directions'.

GCC secretary general Abdul Rahman Al Attiyah, International Monetary Fund officials and European Union Officials will also be present.