Upheaval that has spread across the Middle East, toppling long-time autocratic leaders in Egypt, Tunisia and Libya has prompted governments to hand out billions in an effort to create jobs and offset rising living costs.
Of the total sum, 96.9 million dinars will be spent in 2011 and the rest in 2012, according to a decree issued by King Hamad bin Isa Al-Khalifa.
This will be used to improve the wages and living standards of state employees and retirees, as well as providing more funds to government bodies and bolstering reserves, BNA said.
The king's decree follows the government's approval in August of extra budget spending worth 325 million dinars to cover an increase in public sector salaries.
Facing a rising subsidies bill, the small non-OPEC energy producer has the weakest fiscal position among Gulf Arab neighbors with a budget breakeven oil price at around $100 per barrel.
The country has planned a 2011 budget expenditure of 3.1 billion dinars on revenues of 2.3 billion. The budget was based on an oil price estimate of $80 per barrel.
That put the planned budget shortfall at 835.7 million dinars, or 10.1 percent of gross domestic product, much higher than expected by analysts polled by Reuters in June, who foresaw a fiscal gap of 1.4 percent of GDP.
In May, Bahrain's Parliament approved a 44 percent rise in government spending in 2011-2012 compared to the previous two-year period after the country went in March through its worst unrest since the 1990s.
Robust oil prices are seen alleviating some of the spending pressure this year. However, Bahrain is the only Gulf state projected to see a budget deficit in 2011.
Meanwhile, annual deflation in Bahrain eased to 0.2 percent in August, the smallest price fall in six months, as a jump in food prices during Ramadan drove up living costs in Bahrain from the previous month, data showed on Tuesday .
The small non-OPEC oil producer has experienced deflation since March, when rents plunged as the regional financial hub went through its worst social unrest since the 1990s.
Deflation, unseen in the smallest Gulf economy since 2002, reached 1.3 percent in July after consumer prices rose by 2.0 percent on average last year.
Prices surged by 1.3 percent in August, their biggest month-on-month spike in at least four years, compared with July's 0.6 percent rise, data from the Central Informatics Organization showed. Monthly data prior to August 2007 are not available.
"The monthly jump is because of Ramadan. It is the same trend we have seen across the region," said Paul Gamble, head of research at Jadwa Investment in Riyadh.
The increase in food costs, which make up 16 percent of consumer expenses in Bahrain, slowed to 1.4 percent month-on-month in August from July's five-month high of 2.3 percent.
Food prices usually rise during Ramadan, which ended in August, although some Gulf governments have tried to control prices.
Housing costs, which account for nearly a quarter of the basket, remained flat for the fifth month in a row on a monthly basis in August after diving 14.2 percent in March. Transport prices were up 0.4 percent in August, the data showed.
"I do not see any immediate upside to inflation. Globally, inflation is narrowing, growth is slowing down because of the Greek crises, (and the) American slowdown," said Khan Zahid, chief economist at Riyad Capital.
"Oil prices have been coming down again in the past months. So ... all together, there are no drivers of inflation left."
Bahrain's economy grew by 1 percent quarter-on-quarter in April-June after shrinking in previous three months, but annual growth decelerated to its slowest pace since 2008 as the impact of unrest continued to stifle activity.
Analysts polled by Reuters in June expected average inflation of 3.0 percent in 2011 in the small island kingdom, which pegs its dinar to the US dollar.
