The economic context of Bahrain

Economic Indicators

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Bahrain's economy is closely linked to the fluctuation in global crude oil prices as the rest of the region. However, its impact is much narrower compared to other Gulf countries due to the relatively diverse nature of the Bahraini economy. As such, the economy grew slightly by 2% in 2019 despite a sizeable contraction of the oil industry. Due to the COVID-19 pandemic, it plummeted to -5.1% in 2020 but came back to 2.4% in 2021. GDP growth was expected to strengthen to +3.1% in 2022 and 2023, subject to the post-pandemic global economic recovery (IMF, October 2021). 

Continuing fiscal reforms and emphasing better-targeted subsidies under the Fiscal Balance Program (FBP) helped to narrow the fiscal deficit to 8.04% in 2019 (IMF). Nevertheless, Bahrain’s preliminary estimates of the 2020 total fiscal deficit have reached 1.624 billion dinar (USD 4.31 billion), an increase of 817 million dinar (USD 2.17 billion) from the 2020 approved budget (Finance Ministry, 2021). The substantial pandemic-related crisis package of US$11.3 billion introduced in March 2020, and an additional US$1.3 billion stimulus package in June 2021 to support the sectors hardest-hit by COVID-19, have further limited the country’s fiscal space, and aggravated already weak growth dynamics. More favorable oil market conditions were projected to narrow the fiscal deficit to 8.4% of GDP in 2021 (World Bank, 2021). In 2020 A series of reforms were laid to balance the budget by 2022, but public debt grew to 102.1% of the GDP in 2019, 129.7% in 2020 and 123.4% in 2021. It is expected to reach 125.6% and 128.7% in 2022 and 2023 respectively (IMF, 2021), with sizable gross financing needs. On the other hand, Bahrain's pledge to monetize newly-discovered hydrocarbon reserves of up to 80 billion barrels and around 20 trillion cubic feet of tight natural gas within the next five years will improve its outlook. The non-oil primary balance is expected to keep improving in the back of higher non-oil revenues projected at 6.7% of non-oil GDP in 2020 (Word Bank). Inflation remained low in 2020 (-2.3%) and 2021 (1%), despite the introduction of VAT in January 2019, but is expected to grow again in 2022 and 2023, to 2.7% respectively (World Economic Outlook IMF, October 2021).

Bahrain gave details of a new economic growth and fiscal balance plan in October 2021 that pushes a zero-deficit target back by two years to 2024 from 2022 and increases value-added tax to 10% from 5% (Reuters, 2021).

Persian Gulf nations, among the world’s richest at the turn of the century, have lost ground as the oil price receded. Bahrain, Kuwait, Oman and Saudi Arabia are all dropping out of the global top 20 as living standards stagnate or decline. Unemployment rate among nationals was estimated at 4.9% in 2020 and 3.9% in 2021. It should remain at 3.8% in 2022 and 2023 despite the negative economic impact of the COVID-19 pandemic, according to the latest World Economic Outlook of the IMF (October 2021).

Main Sectors of Industry

Bahrain has a labor force of more than 1.01 million out of its 1.7 million population. The contribution of the agriculture to Bahrain's economy is negligible due to a scarcity of fertile lands, low rainfall and the small size of the country. In 2021, its share of the GDP was 0.3% - one of the lowest shares in the world - and employed 1% of the labour force (World Bank, 2022). 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.

In 2021,employment in industry amounted to 35% of the workforce, a rate that has been stable since 2010. Its share in the local economy is lower, at 40.3%, in 2021 (World Bank, 2022), 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).

The services sector employed 64% of the workforce, a rate that has declined since early 2000s, and accounted for 56.6% of the economy in 2021 (World Bank, 2022). Bahrain's financial sector plays a preeminent role among Gulf countries and contributes significantly to local economy. Other major services 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. A total of 3.2 million visitors arrived in Bahrain in the first quarter of 2019 according to Bahrain Tourism and Exhibitions Authority, the most of them from Arab states of the Persian Gulf.

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	0.9	35.3	63.8
Value Added (in % of GDP)	0.3	40.5	59.2
Value Added (Annual % Change)	0.2	-0.9	-5.1

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