Bahrain has approved an additional budget spending of 388.5 million dinars ($1.03 billion) over two years to cover wage increases for government employees, the state news agency BNA said on Tuesday, following social unrest earlier this year.

Of the total sum, 96.9 million dinars will be spent in 2011 and the rest in 2012, according to a decree issued by His Majesty 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.

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. - Reuters