Bahrain flag Bahrain: Economic and Political Overview

The economic context of Bahrain

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

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 -4.9% in 2020 but came back to 2.2% in 2021 and 3.4% in 2022. GDP growth was expected to remain at 3% in 2023 and 2024, subject to the post-pandemic global economic recovery (IMF, January 2023). 

Continuing fiscal reforms and emphasing better-targeted subsidies under the Fiscal Balance Program (FBP) helped to narrow the fiscal deficit of the country. 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 2020-2021, a series of reforms were laid to balance the budget by 2022, but public debt grew to 129.7% of GDP in 2020, 128.5% in 2021 and 119.5% in 2022. It is expected to reach 121.7% and 124.3% in 2023 and 2024 respectively (IMF, January 2023), 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 2021 (-0.6%) but came back at 3.5% in 2022. It is expected to reach 3.5% in 2023 before coming down to 1.8% in 2024 (World Economic Outlook IMF, January 2023).

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 6.6% in 2021 in Bahrain, and 5.5% in 2022. It should remain at 4.4% in 2023 and 4% in 2024 according to the latest World Economic Outlook of the IMF (January 2023).

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 44.3844.9947.1249.1451.17
GDP (Constant Prices, Annual % Change) 4.92.73.63.22.7
GDP per Capita (USD) 28,78128,46429,08129,58130,051
General Government Gross Debt (in % of GDP) 117.6121.2119.0120.9123.7
Inflation Rate (%) n/a1.01.41.82.2
Unemployment Rate (% of the Labour Force) 5.40.00.00.00.0
Current Account (billions USD) 6.842.993.293.102.53
Current Account (in % of GDP) 15.46.67.06.34.9

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

Bahrain counts a labor force of more than 820 000 out of its 1.47 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 2022, 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, 2023). 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 2022,employment in industry amounted to 35% of the workforce, a rate that has been stable since 2010. Its share in the local economy is higher, at 44.8% in 2022 (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 52.3% of the economy in 2022 (World Bank, 2023). 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.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 1.0 34.9 64.1
Value Added (in % of GDP) 0.3 47.9 47.9
Value Added (Annual % Change) 4.4 1.2 4.9

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:

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:

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

 

Country Risk

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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
 

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Latest Update: February 2024