Economy of Bahrain
Economy of Bahrain
World Rank:
13
Regional Rank:
Least
free
50
75
Most
100 free
75.1
Freedom Trend
79
freedom, trade freedom, and freedom from corruption. Bahrain continues to be the freest economy in the Middle East/
North Africa region, and its economic freedom score is well
above the world average.
Over the 20-year history of the Index, Bahrain has been consistently rated one of the mostly free economies achieving
economic freedom scores above 70. Three of the countrys 10
economic freedomsfinancial freedom, investment freedom,
and labor freedomhave recorded score gains of 10 or more
points since Index grading began. Despite challenging external and internal political environments, Bahrain continues to
be a financial hub for dynamic economic activity, with high
levels of trade and investment bolstered by a competitive and
efficient regulatory environment.
Bahrains challenging transition to greater openness and
diversification is based on foundations of economic freedom.
Firmly institutionalizing the rule of law by enhancing judicial
independence and transparency will be critical to stamping
out lingering corruption and ensuring success in the countrys
ongoing evolution.
BACKGROUND: Bahrain gained its independence in 1971
and became a constitutional monarchy in 2002. In 2011, Shia
opposition activists launched a protest campaign, demanding
a new constitution and greater political power. After modest
concessions and efforts at dialogue failed to stem the demonstrations, King Hamad declared an emergency and authorized
a crackdown supported by Gulf Cooperation Council security
forces. The government has sought to ease tensions through
a national dialogue led by the crown prince. Efforts have been
made to reduce dependence on declining oil reserves through
policies that encourage investment in non-energy sectors.
Home to many multinational firms that do business in the
region, Bahrain has a modern communications and transportation infrastructure, a cosmopolitan outlook, and a free trade
agreement with the U.S.
How Do We Measure Economic Freedom?
78
77
76
75
74
2010
2011
2012
2013
2014
Country Comparisons
75.1
Country
World
Average
60.3
Regional
Average
61.5
Free
Economies
84.1
0
20
40
60
80
100
Quick Facts
Population: 1.2 million
GDP (PPP): $33.1 billion
3.9% growth in 2012
5-year compound annual growth 4.0%
$28,744 per capita
Unemployment: 3.4%
Inflation (CPI): 1.2%
FDI Inflow: $891.2 million
Public Debt: 33.7% of GDP
2012 data unless otherwise noted.
Data compiled as of September 2013.
111
BAHRAIN (continued)
THE TEN ECONOMIC FREEDOMS
Score
RULE OF
LAW
Country
World Average
20
40
60
80
Rank
1Year
Change
41st
49th
+5.0
1.6
100
In the years since martial law was imposed after social unrest in 2011, the government has
pursued a reformist domestic political agenda, although progress on further economic reforms
appears to be on hold. The king holds some decision-making authority within the British-legacy legal system, but the judiciary is generally well regarded and unbiased. Expropriation, especially without compensation, is infrequent, and private property is secure.
Fiscal Freedom 99.9
GOVERNMENT
Government Spending 71.4
SIZE
2nd
83rd
0
20
40
60
80
0
1.0
100
Bahrain levies no taxes on individual income. Oil companies must pay a 46 percent corporate income tax, but most other businesses are exempt from taxation. Other taxes include a
stamp tax and a tax on property purchases. Government revenue equals 3.1 percent of GDP, and
expenditures have climbed to 30.9 percent of domestic income, cushioned by energy exports.
Public debt remains below 35 percent of GDP.
REGULATORY
EFFICIENCY
41st
20th
59th
0
20
40
60
80
+0.5
8.4
+5.9
100
Starting a business costs less than 1 percent of the level of average annual income, but the minimum capital required is high. Obtaining needed permits is relatively time-consuming. There is
no nationally mandated minimum wage, but wage increases have exceeded overall productivity growth. The government scaled back natural gas subsidies for industrial users in 2013 but
maintains price controls and subsidies on food items, water, and electricity.
OPEN
MARKETS
79th
35th
4th
0
20
40
60
80
4.2
0
0
100
Bahrain has a 5.7 percent average tariff rate along with relatively few non-tariff barriers to
trade. Several state-owned enterprises have yet to be privatized. As a regional financial hub,
Bahrains diverse and competitive financial institutions account for over 25 percent of GDP.
Foreign and domestic investors have access to modern financial services on market terms.
112
0
20.6
GOVERNMENT
SIZE
Fiscal Freedom
Government
Spending
+0.5
0.3
REGULATORY
EFFICIENCY
OPEN MARKETS
Trade Freedom
+0.2
Investment Freedom +25.0
Financial Freedom +10.0