Economy of Bahrain

Economy overview

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 that over the last few years, lower world energy prices have generated sizeable budget deficits - about 10% of GDP in 2017 alone. Bahrain's economy depends on oil and gas, international banking, and tourism.

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).

History

Though current GDP per capita shrank by 2.4% in the 1980s, it bounced back to a growth of 36% in the 1990s, resulting from diversification initiatives. Bahrain's urgency in embracing economic liberalization is due to its need to diversify the economy away from its limited oil supplies. Unlike its Persian Gulf neighbors, 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 center 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, it was found that:

• 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. http://www.imf.org/external/pubs/ft/scr/2006/cr0691.pdf

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 large-scale privatization program 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.

As a result, the economy has been well-positioned to capitalize on the extra revenues generated in the region, due to the sustained high oil prices since 2002. In January 2006, the United Nations Economic and Social Commission for Western Asia cited Bahrain as the fastest-growing economy in the Arab world.

Between 1981 and 1993, the Bahrain Government's 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 oil revenues to build an advanced transportation and telecommunications infrastructure. 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; healthcare, education, public services, and roads have seen improvement.

The success of ventures such as the Bahrain Grand Prix has raised the Kingdom's international profile, and combined with the boom in Islamic banking, has encouraged major airlines to resume services to the country, with Lufthansa announcing on 14 March 2006 that it would schedule three flights a week to Muharraq from Frankfurt.

Bahrain has initiated a series of labor reforms under Minister of Labor Majeed Al Alawi to bring the labor market in line with international standards.

In 2009, it was announced that the Bahraini Government would be developing land next to the Bahrain International Circuit. The project has been titled @bahrain. @bahrain is part of the Mumtalakat group of companies and will dedicate more than 1 million square meters to business, entertainment, and educational services, with a value in excess of $2bn (BD 850 million).

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 & Government Authority (iGA) report.

Overall, during 2023, Bahrain's GDP grew by 2.45%, with the non-oil sector increasing by 4.48%.

Macro-economic trend

This is a chart of the trend of gross domestic product of Bahrain at market prices estimated by the International Monetary Fund, with figures in millions of Bahraini Dinars.

For purchasing power parity comparisons, the US Dollar is exchanged at 0.30 Bahraini Dinars. Mean wages were $19.81 per man-hour in 2009.

The following table shows the main economic indicators from 1980–2024.

Hydrocarbon industry

Petroleum and natural gas are the only significant natural resources present in Bahrain. Because of its 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 outside of Iran. 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 operations via pipeline. Bahrain also receives a large portion of net output and revenues from Saudi Arabia's Abu Saafa offshore oilfield.

The Bahrain National Gas Company operates a gas liquefaction plant that utilizes gas piped directly from Bahrain's oilfields. Gas reserves should last about 50 years at present rates of consumption. The Gulf Petrochemical Industries Company (GPIC) is a joint venture of the petrochemical industries of Kuwait, the Saudi Basic Industries Corporation, and the Government of Bahrain. The plant, completed in 1985, produces ammonia, methanol and urea for export.

Bahrain's other industries include mining natural minerals. Some of the largest companies include Aluminum Bahrain, which operates the Bahrain Aluminum Extrusion Company and the Gulf Aluminum Rolling Mill Company (GARMCO). Other plants include the Arab Iron and Steel Company's iron ore pelletizing plant (4 million tons annually) and a shipbuilding and repair yard.

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 offers direct and frequent cargo shipping connections to the U.S., Europe, and the Far East. Notable Bahraini companies include Investcorp, a global investment firm founded in 1982 and headquartered in Manama, which has invested in various international brands such as Gucci.

Taxation

Taxation and import laws apply equally to domestic and foreign-owned companies. Furthermore foreign investors must comply with the same requirements and legislation as domestic firms.

Oil and gas companies are taxed 46 percent on income derived from the sale of hydrocarbons and derivative products.

Bahrain does not levy a personal income tax. However, individuals employed by a natural person or a legal entity or an enterprise in the Kingdom of Bahrain are subject to contributions to the Social Insurance Organization (SIO) rules 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), 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.

References

Notes

Bibliography

• Kingdom of Bahrain, Ministry of Labour Unemployment Insurance System. Accessed November 6, 2007.

References

1. "World Economic Outlook Database, April 2019". [[International Monetary Fund]].
2. "World Bank Country and Lending Groups". [[World Bank]].
3. "Population, total - Bahrain". World Bank.
4. "Report for Selected Countries and Subjects: April 2025". [[International Monetary Fund]].
5. "The World Factbook".
6. https://hdr.undp.org/content/human-development-report-2025
7. "Labor force, total - Bahrain". World Bank & [[ILO]].
8. "Employment to population ratio, 15+, total (%) (national estimate) - Bahrain". World Bank & ILO.
9. "MIDDLE EAST :: BAHRAIN". [[Central Intelligence Agency]].
10. "World Bank Open Data".
11. (2016). "Export Partners of Bahrain". [[CIA World Factbook]].
12. (2016). "Import Partners of Bahrain". [[CIA World Factbook]].
13. "Sovereigns rating list". Standard & Poor's.
14. "Lower rates and higher oil activity to lift Bahrain economy".
15. https://2009-2017.state.gov/outofdate/bgn/bahrain/8143.htm
16. https://2009-2017.state.gov/outofdate/bgn/bahrain/26416.htm
17. "Bahrain's economy praised for diversity and sustainability". Bahrain Economic Development Board.
18. [http://www.hedgefundsreview.com/public/showPage.html?page=744774 Hedge Funds Review] 18 March 2008
19. [http://www.gulf-daily-news.com/Story.asp?Article=211833&Sn=BNEW&IssueID=30364 ''Gulf Daily News''] 18 March 2008
20. (25 April 2008). "Bahrain calling – Banking & Finance". ArabianBusiness.com.
21. "CIA World Factbook, "Bahrain"". Cia.gov.
22. "Bahrain Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption".
23. (2020). "Economic Freedom of the World Annual Report".
24. "Bahrain {{!}} Data".
25. "Country Factsheet". Central Intelligence Agency.
26. "Middle East :: Bahrain — The World Factbook - Central Intelligence Agency".
27. "GDP: GDP per capita, current US dollars".
28. (4 October 2018). "Saudi Arabia, Kuwait, UAE to support Bahrain's economy with $10 billion". Reuters.
29. "Gulf Daily News".
30. "Gulf Daily News » Business News » Jobs 'for generations to come'".
31. (2023-08-25). "Bahrain-origin exports dip 23% to $848mln in July". Zawya.
32. (26 December 2023). "Bahrain notched up 2.45% growth in third quarter of 2023". Gulf News.
33. "Report for Selected Countries and Subjects".
34. "2012 Investment Climate Statement - Bahrain".
35. "Bahrain - Corporate - Taxes on corporate income".
36. "Social Insurance Organization (SIO)" https://www.sio.gov.bh/
37. "Amendments to Social Insurance Law - Employee Benefits & Compensation - Bahrain".