Economic Outline

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.

Any Comment About This Content? Report It to Us.