The economy of Bahrain is heavily dependent upon oil and gas.[15] The Bahraini Dinar is the second-highest-valued currency unit in the world.[16] Since the late 20th century, Bahrain has heavily invested in the banking and tourism sectors.[17] The country's capital, Manama is home to many large financial structures. Bahrain's finance industry is very successful. In 2008, Bahrain was named the world's fastest growing financial center by the City of London's Global Financial Centres Index.[18][19] Bahrain's banking and financial services sector, particularly Islamic banking, have benefited from the regional boom driven by demand for oil.[20] Petroleum is Bahrain's most exported product, accounting for 60% of export receipts, 70% of government revenues, and 11% of GDP.[21]Aluminium is the second most exported product, followed by finance and construction materials.[21]
Oil and natural gas play a dominant role in Bahrain’s economy. Despite efforts to diversify the economy, according to the CIA World Fact Book: oil still comprises 85% of Bahraini budget revenues, meaning throughout the last few years lower world energy prices have generated sizeable budget deficits - about 10% of GDP in 2017 alone.[25] Bahrain is a rich country in the middle east and the north africa (MENA) region and its economy depends on oil & gas, international banking and tourism.[17]
In 2003 and 2004, the balance of payments improved due to rising oil prices and increased receipts from the services sector. As a result, the current account balance registered a surplus of US$219 million in 2003 and a surplus of US$442 million in 2004, compared to a deficit of US$35 million in 2002. Bahrain's gross international reserves increased substantially in 2004 to US$1.6 billion, up from US$1.4 billion in the previous three years (2001-2003).
Diversification
Though Current GDP per capitaArchived 2012-05-04 at the Wayback Machine shrank by 2.4% in the 1980s, it bounced back to a growth of 36% in the 1990s as a result of successful diversification initiatives. Bahrain's urgency in embracing economic liberalisation is due to its need to diversify the economy away from its limited oil supplies. Unlike its Persian Gulf neighbours, Bahrain has little oil wealth and the economy has expanded into banking, heavy industries, retail and tourism. The Kingdom is the main banking hub for the Persian Gulf and a centre for Islamic finance, which has been attracted by the strong regulatory framework for the industry. According to the International Monetary Fund's Financial System Stability Assessment of Bahrain's financial regulatory environment, published on 6 March 2006, found:
The financial system is enjoying strong performance under favorable circumstances, and is likely to remain a major contributor to overall growth. The main risk stems from potential overheating in the economies of the region, but the system should be resilient to likely shocks.
Prudential regulations are modern and comprehensive, and supervision is generally effective, especially in the dominant banking sector. Supervisory capacity needs to be expanded in line with new regulations and to keep up with the growth and increasing sophistication of financial institutions.
The further expansion of the Islamic sector, the development of housing finance, and the deepening of securities markets are important for the future growth of the financial system. The banking and insurance sectors will eventually undergo consolidation. [1]
In 2005, Bahrain signed the US-Bahrain Free Trade Agreement, becoming the first Persian Gulf state to sign such a bilateral trade agreement with the United States. A massive privatization programme is underway to sell off key government assets: utilities, banks, financial services, and telecommunications have started to come under the control of the private sector.
Between 1981 and 1993, Bahrain Government expenditures increased by 64%. During that same time, government revenues continued to be largely dependent on the oil industry and increased by only 4%. Bahrain has at times received significant budgetary support and project grants from Saudi Arabia, Kuwait and the United Arab Emirates.
The government has used its modest oil revenues to build an advanced infrastructure in transportation and telecommunications. Bahrain is a regional financial and business center. Tourism, especially from the region, has proved another significant source of income.
Bahrain has benefited from the oil boom since 2001, with economic growth of 5.5%. It has succeeded in attracting investment from other Persian Gulf states partly because it used the revenues of the 1970s-early 80s boom to invest in infrastructure development and other projects to improve the standard of living; health, education, housing, electricity, water, and roads all received attention.
As part of its efforts to build a modern economy, Bahrain has initiated a series of labour reforms under Minister of Labour Majeed Al Alawi in order to bring the labour market into line with international standards. Bahrain intends to expand its high tech industries, invest in research and development, and strengthen its competitive edge within a global economy. In 2006,it was announced that the Bahrain Science and Technology Park,a Kuwait Finance House Bahrain initiative would be a reflection of this effort to create a diversified economy, provide high quality jobs for locals and international workforce, providing a place for innovative and inventive thinking that will have direct benefits to the island nation.
In 2009 it was announced that the Bahraini Government would be developing land next door to the Bahrain International Circuit. The project being managed by @Bahrain is a mix of facilities including an exhibition and convention facility, a choice of hotel accommodations ranging from mid-market to luxury, a multi-purpose indoor arena, an automotive club and engineering facility, retail and leisure establishments, a tech-tainment (technology interacting with entertainment) centre, a research institute, a technology park and a focus on education and training. @Bahrain is part of the Mumtalakat group of companies and will dedicate more than 1 million square meters of business, entertainment and educational space with a value in excess of $2bn (BD 850 million), making it one of the largest investment projects to take place in Bahrain in the past five years.[26]
In July 2023, Bahrain's national origin exports decreased by 23%, valued at BD323 million, while imports fell by 6% to BD441 million, resulting in a trade deficit of BD68 million, according to the Information & eGovernment Authority (iGA) report.[27]
Overall during 2023, Bahrain's GDP grew by 2.45%, with the non-oil sector showing a robust increase of 4.48%, indicating the country's successful efforts towards economic diversification.[28] The Bahrain Economic Development Board played a crucial role in enhancing Bahrain's investment climate, actively facilitating the entry of international investors and expanding the sectors open to 100% foreign ownership, including significant initiatives in the oil and gas sectors under certain conditions.[29]
Macro-economic trend
This is a chart of trend of gross domestic product of Bahrain at market prices estimated by the International Monetary Fund with figures in millions of Bahraini Dinars.
Year
Gross Domestic Product
US Dollar Exchange
Inflation Index (2000=100)
1980
1,354
0.377 Bahraini Dinars
74
1985
1,609
0.377 Bahraini Dinars
90
1990
1,867
0.377 Bahraini Dinars
89
1995
2,552
0.377 Bahraini Dinars
98
2000
3,408
0.377 Bahraini Dinars
100
2005
6,004
0.377 Bahraini Dinars
105
2010
9,668
0.377 Bahraini Dinars
120
2015
11,675
0.377 Bahraini Dinars
133
2020
13,058
0.377 Bahraini Dinars
139
For purchasing power parity comparisons, the US Dollar is exchanged at 0.30 Bahraini Dinars only. Mean wages were $19.81 per man-hour in 2009.
The following table shows the main economic indicators in 1980–2022.[30]
Year
GDP
(in bil. US$ PPP)
GDP per capita
(in US$ PPP)
GDP
(in bil. US$ nominal)
GDP growth (real)
Inflation (in Percent)
Government debt (in % of GDP)
1980
7.3
20,779
3.6
7.5 %
3.8 %
...
1985
11.4
27,186
4.3
−0.9 %
−2.4 %
...
1990
14.7
30,044
5.0
3.5 %
1.3 %
8 %
1995
20.5
36,705
6.8
1.9 %
3.1 %
14 %
2000
28.0
43,920
9.1
7.0 %
−0.7 %
26 %
2005
40.4
45,440
16.0
6.8 %
2.6 %
24 %
2010
58.2
47,117
25.7
4.3 %
2.0 %
30 %
2011
60.6
50,673
28.8
2.0 %
−0.3 %
33 %
2012
65.9
54,489
30.7
3.7 %
2.8 %
36 %
2013
67.7
54,035
32.5
5.4 %
3.3 %
44 %
2014
68.3
51,938
33.4
4.4 %
2.6 %
44 %
2015
62.5
45,627
31.1
2.5 %
1.8 %
66 %
2016
63.8
44,834
32.2
3.6 %
2.8 %
81 %
2017
71.3
47,486
35.5
4.3 %
1.4 %
88 %
2018
74.5
48,424
37.8
2.1 %
2.1 %
95 %
2019
77.5
50,118
38.7
2.2 %
1.0 %
102 %
2020
74.9
48,166
34.6
−4.6 %
−2.3 %
130 %
2021
80.3
48,357
39.3
2.6 %
−0.6 %
127 %
2022
90.1
49,482
44.4
4.9 %
3.6 %
118 %
Investment
The stock market capitalisation of listed companies in Bahrain was valued at $21,176 million in 2008 by the World Bank.[2]
Bahrain is generally a country which is open to creating a unique economy which is fast growing and open for all to create business opportunities.
Hydrocarbon industry
Petroleum and natural gas are the only significant natural resources in Bahrain. Because of limited reserves, Bahrain has worked to diversify its economy over the decade prior to 2004. Bahrain has stabilized its oil production at about 40,000 barrels (6,400 m³) per day, and reserves are expected to last 10 to 15 years. The Bahrain Petroleum Company refinery was built in 1935, has a capacity of about 250,000 barrels (40,000 m³) per day, and was the first in the Persian Gulf. After selling 60% of the refinery to the state-owned Bahrain National Oil Company in 1980, Caltex, a U.S. company, now owns 40%. Saudi Arabia provides most of the crude for refinery operation via pipeline. Bahrain also receives a large portion of the net output and revenues from Saudi Arabia's Abu Saafa offshore oilfield.
Bahrain's other industries include Aluminum Bahrain, which operates an aluminum smelter—the largest in the world with an annual production of about 1,500,000 metric tons—and related factories, such as the Aluminum Extrusion Company and the Gulf Aluminum Rolling Mill Company (GARMCO)[3]. Other plants include the Arab Iron and Steel Company's iron ore pelletizing plant (4 million tons annually) and a shipbuilding and repair yard.
Bahrain's development as a major financial center has been the most widely heralded aspect of its diversification effort. International financial institutions operate in Bahrain, both offshore and onshore, without impediments. In 2001, Bahrain's central bank issued 15 new licenses. More than 100 offshore banking units and representative offices are located in Bahrain, as well as 65 American firms. Bahrain's international airport is one of busiest in the Persian Gulf, serving 22 carriers. A modern, busy port offers direct and frequent cargo shipping connections to the U.S., Europe, and the Far East. Internationally recognised Bahraini companies include Investcorp, the venture capital firm credited with turning around the fortunes of Gucci.
Taxation
Taxation and import laws apply equally to Bahraini and foreign-owned companies, and foreign investors must comply with the same requirements and legislation as local firms.
Oil and gas companies are taxed 46 percent on income derived from the sale of hydrocarbons and derivative products.
There is no personal income tax in Bahrain.
Employers and workers must pay social insurance contributions as follows:
(1) for old-age, disability and survivor protection: for Bahraini employees, since May 2022, employers pay 14% of salary plus constant allowances, the percentage will rise by 1% each year (up to 20% in 2028),[31] workers pay 7% plus constant allowances; for non-Bahraini employees, employers pay 3% of salary plus constant allowances (then being entitled only to employment injury benefits).
(2) for unemployment insurance: since June 1, 2007, all wages are subject to a 2% tax, paid for equally by the employer and the employee, applicable both to nationals and non-citizens and supplemented by a government contribution of 1%. This makes Bahrain the first of the GCC countries to implement a UI scheme.