The economic context of Bahrain

Economic Indicators

Despite its limited oil wealth, Bahrain boasts one of the most diversified economies in the GCC, driven by construction, manufacturing, and a strong services sector. The non-oil sector continues to be the main engine of economic growth. The government’s four-year plan (2023-2026) focuses on key objectives, including improving living standards, enhancing infrastructure, and speeding up digital transformation. After moderating to 3% in 2023 due to tighter financial conditions and negative growth in the oil sector, preliminary data shows that the economy grew by 3.5% in 2024, driven primarily by diverse non-oil activities. The hydrocarbon sector saw a slight improvement in 2024, thanks to increased oil production at the Abu Safah oilfield. The non-oil sector expanded by 3.8%, supported by tourism, services, and ongoing infrastructure projects. Growth is expected to moderate to around 3% in the medium term, influenced by persistently high interest rates and fiscal consolidation (data from World Bank).

On the fiscal front, the Fiscal Balance Program (FBP) has concentrated on boosting revenue while controlling government spending. Notable reforms include the doubling of the VAT rate to 10% in 2022 and, more recently, the introduction of the domestic minimum top-up tax (DMTT) in September 2024. This new tax imposes a minimum 15% rate on the profits of multinational enterprises with global revenues exceeding EUR 750 million (USD 828 million), effective from 1 January 2025. Limited spending growth under the FBP and higher oil revenues lead to a lower fiscal deficit of 9% of GDP in 2024, down from over 10% of GDP in 2023. However, achieving fiscal balance will likely require higher oil prices. Non-hydrocarbon revenues are anticipated to rise in 2025-26, supported by the implementation of the newly announced corporate tax and the expanding capacity of the Sitra oil refinery. Fiscal challenges persist as public debt remains high (estimated at 126.7% in 2024, from 123.3% one year earlier) and reserves are low, exposing ongoing fiscal and external vulnerabilities in the medium term. Without further fiscal reforms and in the face of expected low commodity prices and monetary tightening, both fiscal and external accounts are likely to remain under pressure. Inflation was estimated to be low at 1.3% in 2024 and is expected to converge to below 2% in the medium term, driven by strong domestic demand. However, the positive effects of tighter monetary policy, aligned with the currency peg to the U.S. dollar, will help contain any significant price increases (data World Bank).

Being a small country, Bahrain relies heavily on the foreign workforce. By the second quarter of 2024, the number of active foreign worker permits reached 631,763 in 2024, marking a 3.8% annual increase compared to 608,411 permits in the corresponding period one year earlier. Between January and June 2024, the number of Bahrainis employed reached 12,555, representing 63% of the annual target of employing 20,000 Bahrainis, as outlined in the Economic Recovery Plan (data Labour Market Regulatory Authority). Overall, Bahrain has a high GDP per capita (PPP), estimated at USD 65,344 in 2024 by the IMF.

Main Sectors of Industry

Bahrain has a labour force of more than 905,000 out of its 1.57 million population. The contribution of agriculture to Bahrain's economy is negligible due to a scarcity of fertile lands, low rainfall, and the small size of the country. In 2023, its share of the GDP was 0.3% - one of the lowest shares in the world - and employed 0.9% of the labour force (World Bank, latest data available). Date palm cultivation and the pearl industry used to account for a considerable share of the economy prior to the development of the oil industry. According to the latest governmental figures, the agricultural sector recorded a 4.7% year-on-year growth in gross value added in 2023, with around 1,500 active companies.

Employment in industry amounts to 34.7% of the workforce, a rate that has been stable since 2010. The share of the primary sector in the national economy stands at 44% (World Bank) and revolves around aluminium, petrochemicals, and food processing. The Alba aluminium shelter is one of the largest in the world, producing more than 2% of global output and 15% of Bahrain's GDP (NBK Bahrain). Overall, the manufacturing sector is estimated to account for 21% of GDP, while oil rents cumulate 10.9% (World Bank). As a small non-OPEC Gulf oil producer with around 124.6 million barrels of proven reserves, Bahrain derives its oil revenues from two fields: the onshore Bahrain field and the offshore Abu Safah field, which it shares with Saudi Arabia. As per official figures, the manufacturing sector recorded year-on-year growth rates of 3.9%, 1.7%, and 4.2% in the first three quarters of 2024, respectively.

The services sector employs 64.5% of the workforce, a rate that has declined since the early 2000s, and accounts for 51.8% of the economy (World Bank). Bahrain's financial sector plays a preeminent role among Gulf countries and contributes significantly to the local economy: the financial corporations are one of the largest non-oil sectors contributing to the real GDP by 18.08% (official governmental figure). The banking sector includes 29 retail banks (13 locally and incorporated and 16 foreign banks’ branches), 53 wholesale banks, and 8 representative offices of overseas banks, with USD 247.8 billion in assets as of January 2025 (data Central Bank of Bahrain). In 2023, the financial services sector surpassed the oil sector to become the largest contributor to real GDP, accounting for 17.8%. Other major service sectors include telecommunications and transportation. Tourism is another important sector of the economy, and the country attracts almost 10 times its resident population in a given year.

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	0.9	34.7	64.5
Value Added (in % of GDP)	0.3	44.0	51.8
Value Added (Annual % Change)	4.7	-0.4	5.4

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:

69,9/100

World Rank:

40

Regional Rank:

4

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:

6.75/10

World Rank:

41/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025

 

Sources of General Economic Information

Ministries

Ministry of Finance and National Economy
National Oil and Gas Authority

Statistical Office

Bahrain Open Data Portal

Central Bank

Central Bank of Bahrain

Stock Exchange

Bahrain Bourse

Economic Portals

Arabian Business