Bahrain: Economic and Political Overview

Economic Indicators

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. Bahrain experienced strong growth in 2022 (+4.9%); however, growth moderated to 2.7% in 2023, driven by non-oil GDP expanding by 3.3%, attributed to fiscal consolidation, increased interest rates, and a base effect from strong growth in 2022. Going forward, GDP is expected to pick up to 3.6% in 2024 and 3.2% the following year, on the back of higher energy prices, easing monetary policy, and stronger export growth (IMF). Private consumption is poised to remain the primary growth driver, constituting approximately 40% of GDP, buoyed by alleviating inflationary pressures. However, notable uncertainty persists in the forecast, stemming from factors such as oil price fluctuations, international financial instability, ongoing tightening measures, and a potential slowdown in global growth.

In 2023, Fitch projected that the general government budget deficit would narrow to 4.9% of GDP, down from 5.9% in 2022. Despite a decline of approximately 3% in oil revenue, revenues were expected to increase. Fitch also forecasted a similar trend for 2024, projecting a budget deficit of 3.4% of GDP. The authorities aimed for a balanced budget with an oil price of USD 60 per barrel in 2024, a considerable reduction from the USD 105 fiscal breakeven oil price in 2022. According to Fitch, the budget for 2023-24 outlined a credible strategy for substantially enhancing the non-oil balance. This strategy encompassed increased revenues from newly implemented and revised taxes and fees, augmented revenues from gas sales achieved through enhanced collection methods and higher volumes, as well as elevated dividends from state-owned enterprises (SOEs). Despite robust fiscal reform efforts and a reduction in budget deficits, the debt-to-GDP ratio rose to 121.2% in 2023, up from 117.6% the previous year. Also, thanks to the positive impact of subsidies, inflation decreased in 2023, averaging an estimated 1%, following a 3.6% rate in 2022 (IMF). Over the forecast horizon, inflation is expected to remain between 1.4%-1.8%.

Being a small country, Bahrain relies heavily on the foreign workforce. In the second quarter of 2023, total employment reached 770,129 workers. Foreign workers' employment accounted for 609,028 workers by the quarter's end, marking an 8.1% annual increase. Meanwhile, Bahraini employment stood at 161,101 workers, reflecting a slight annual decline of 0.2% (data Labour Market Regulatory Authority). According to the latest figures available from the IMF, unemployment stood at 5.4% as of end-2022. Overall, Bahrain has a high GDP per capita (PPP), estimated at USD 61,248 in 2022 by the World Bank.

Main Sectors of Industry

Bahrain counts a labor force of more than 844,000 out of its 1.46 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 2022, its share of the GDP was 0.3% - one of the lowest shares in the world - and employed 1% of the labor 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. As per the Ministry of Municipalities Affairs and Agriculture, there was a significant increase of 36% in agricultural production in the nation, with output reaching almost 13,000 tonnes in 2022 compared to 2015 figures. This growth can be credited to various factors such as the expansion of greenhouses, a larger workforce, and improvements in agricultural techniques.

Employment in industry amounts to 35% of the workforce, a rate that has been stable since 2010. The share of the primary sector in the national economy stands at 47.9% (World Bank), and revolves around aluminum, petrochemicals, and food processing. The Alba aluminum 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 one-fourth 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.

The services sector employs 64% of the workforce, a rate that has declined since the early 2000s, and accounts for 47.9% 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 30 retail banks (13 locally and incorporated and 17 foreign banks’ branches), 61 wholesale banks, and 8 representative offices of overseas banks (data Bahrain Association of Banks). 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.

 

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.

 

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Monetary Indicators	2015	2016	2017	2018	2019
Baraini Dinar (BHD) - Average Annual Exchange Rate For 1 MUR	0.01	0.01	0.01	0.01	0.01

Source: World Bank - Latest available data.

 

 

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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

 

Foreign Trade in Figures

Bahrain's market constitutes one of the most diversified economies in the region. The country is very open to foreign trade, which accounts for around 160% of the GDP (World Bank, latest data available). Bahrain has a strong steel and aluminum industry: unwrought aluminum alloys emerged as the leading exports in 2023, totaling BHD 1.059 billion (27%), trailed by agglomerated iron ores and concentrates alloyed at BHD 689 million (18%), and non-alloyed aluminum wire ranking third with BHD 223 million (6%). As per imports, non-agglomerated iron ores and concentrates alloyed emerged as the top product imported to Bahrain, with a total value of BHD 602 million (10%). Following closely, other aluminum oxide ranked second at BHD 448 million (8%), while gold ingots secured the third position with BHD 221 million (4% - data Information & eGovernment Authority).

Overall, the country has a structural trade surplus. In 2023, China held the top position for imports to Bahrain, totaling BHD 808 million (14%), followed by the United Arab Emirates in second place with BHD 547 million (9.5%), and Brazil ranking third with BHD 523 million (9%). On the other hand, the Kingdom of Saudi Arabia secured the top rank among countries for the exports of products with national origin, totaling BHD 937 million (24%). Following closely, the United Arab Emirates ranked second with BHD 444 million (11%), while the United States of America held the third position with BHD 371 million (9% - data Information & eGovernment Authority).
As per governmental data, the value of imports has decreased by 1%, reaching BHD 5.778 billion during 2023, compared to BHD 5.842 billion in 2022. Conversely, the value of exports of products with national origin marked a decrease by 21% to BHD 3.909 billion during 2023, compared to BHD 4.967 billion in 2022. As per services, the latest data available from WTO show that exports stood at USD 11.5 billion in 2022, against USD 8.5 billion in imports.

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

Search Engines

Google Bahrain

Economic Portals

Arabian Business

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