Economy of Bahrain
's economy has diversified in recent years to be less dependent on oil and gas, although they remain an important part of the economy. As of 2024, the extraction of oil and natural gas is the third largest sector in the economy. Bahrain advocates for a mixed economy system. Two examples of Bahrain’s advocacy for this system in the late 20th century are heavily investing in the banking and tourism sectors. In 2008, Bahrain was ranked highly in the Global Financial Centres Index, which evaluates financial centres using survey responses and quantitative indicators. Bahrain's banking and financial services sector, particularly Islamic banking, have benefited from the regional boom driven by demand for oil. Petroleum is Bahrain's most exported product, accounting for 60% of export receipts, 70% of government revenues, and 11% of GDP. Aluminum is the second most exported product, followed by finance and construction materials.
According to the 2020 edition of the Index of Economic Freedom, Bahrain has the fourth-freest economy in the Middle East and North Africa region and is the 40th-freest economy in the world. One alternative index providing the same statistics places Bahrain at 70th place. Bahrain was recognized by the World Bank as a high-income economy.
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.
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.
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.
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 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.| Year | Gross Domestic Product | US Dollar Exchange | Inflation Index |
| 1980 | 1,354 | 0.377 Bahraini Dinars | 74 |
| 1985 | 1,609 | 0.377 Bahraini Dinars | 90 |
| 1990 | 1,867 | 0.377 Bahraini Dinars | 89 |
| 1995 | 2,552 | 0.377 Bahraini Dinars | 98 |
| 2000 | 3,408 | 0.377 Bahraini Dinars | 100 |
| 2005 | 6,004 | 0.377 Bahraini Dinars | 105 |
| 2010 | 9,668 | 0.377 Bahraini Dinars | 120 |
| 2015 | 11,675 | 0.377 Bahraini Dinars | 133 |
| 2020 | 13,058 | 0.377 Bahraini Dinars | 139 |
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.
| Year | GDP | GDP per capita | GDP | GDP growth | Inflation | Government debt |
| 1980 | 7.3 | 20,779 | 3.6 | 7.5 % | 3.8 % | ... |
| 1985 | 11.4 | 27,186 | 4.3 | −0.9 % | −2.4 % | ... |
| 1990 | 14.7 | 30,044 | 5.0 | 3.5 % | 1.3 % | 8 % |
| 1995 | 20.5 | 36,705 | 6.8 | 1.9 % | 3.1 % | 14 % |
| 2000 | 28.0 | 43,920 | 9.1 | 7.0 % | −0.7 % | 26 % |
| 2005 | 40.4 | 45,440 | 16.0 | 6.8 % | 2.6 % | 24 % |
| 2010 | 58.2 | 47,117 | 25.7 | 4.3 % | 2.0 % | 30 % |
| 2011 | 60.6 | 50,673 | 28.8 | 2.0 % | −0.3 % | 33 % |
| 2012 | 65.9 | 54,489 | 30.7 | 3.7 % | 2.8 % | 36 % |
| 2013 | 67.7 | 54,035 | 32.5 | 5.4 % | 3.3 % | 44 % |
| 2014 | 68.3 | 51,938 | 33.4 | 4.4 % | 2.6 % | 44 % |
| 2015 | 62.5 | 45,627 | 31.1 | 2.5 % | 1.8 % | 66 % |
| 2016 | 63.8 | 44,834 | 32.2 | 3.8 % | 2.8 % | 81 % |
| 2017 | 71.3 | 47,486 | 35.5 | 4.9 % | 1.4 % | 88 % |
| 2018 | 74.5 | 48,424 | 37.8 | 2.0 % | 2.1 % | 90 % |
| 2019 | 77.5 | 50,118 | 38.7 | 2.0 % | 1.0 % | 97 % |
| 2020 | 78.7 | 48,166 | 34.6 | −5.9 % | −2.3 % | 126 % |
| 2021 | 82.7 | 48,357 | 39.3 | 4.3 % | −0.6 % | 122 % |
| 2022 | 93.9 | 49,482 | 44.4 | 6.0 % | 3.6 % | 111 % |
| 2023 | 100.1 | 57,213 | 46.1 | 3.0 % | 0.1 % | 123 % |
| 2024 | 105.6 | 57,503 | 47.8 | 3.0 % | 1.4 % | 126 % |