BAHRAIN

Economic Freedom Score

50
25 75
Least Most
free 0 100 free
World Rank: 18 Regional Rank: 1 73.4

Bhasahrain’s economic freedom score is 73.4, making its econ-

omy the 18th freest in the 2015 Index. Its overall score
decreased by 1.7 points due to declines in investment
Freedom Trend
79
freedom, monetary freedom, and business freedom. Bahrain
78
continues to be the freest economy in the Middle East/North
Africa region, and its economic freedom score is well above 77
the world average.
76
Over the past five years, Bahrain’s economic freedom score
has declined by 4.3 points, with a particularly sharp drop fol- 75
lowing civil unrest in 2011. In the 2015 Index, the kingdom
74
registered the 10th largest score decline. Renewed efforts to
enhance the foundations of economic freedom through firm 73
institutionalization of property rights and greater transpar-
ency remain critical to ensuring long-term economic develop- 72
ment and a successful transition to a more open society. 2011 2012 2013 2014 2015

The recent disappointing trend in economic freedom, howev-

er, masks significant score gains since 1995 when Bahrain was Country Comparisons
first graded in the Index. Impressive long-term improvements
in financial, investment, and labor freedoms have helped the Country 73.4
kingdom transform itself into a competitive trade and finan-
cial hub that leads the region in many areas. World
60.4
Average
BACKGROUND: Bahrain gained independence in 1971 and
became a constitutional monarchy in 2002. In 2011, Shia Regional
Average 61.6
activists launched a campaign demanding a new constitu-
tion and greater political power. When modest concessions Free
84.6
and efforts at dialogue failed to stem the demonstrations, Economies
King Hamad authorized a crackdown that was subsequently 0 20 40 60 80 100
supported by the regional Gulf Cooperation Council security
forces. The government has sought to ease tensions through a
national dialogue led by the crown prince and by introducing Quick Facts
several law enforcement, intelligence, and judicial reforms. Population: 1.2 million
Efforts have been made to reduce dependence on declining GDP (PPP): $40.6 billion
oil reserves by encouraging investment in non-energy sec- 4.9% growth in 2013
tors. Home to many multinational firms that do business in 5-year compound annual growth 3.4%
the region, Bahrain has a modern communications and trans- $34,584 per capita
portation infrastructure, a cosmopolitan outlook, and a free Unemployment: 7.4%
trade agreement with the U.S. Inflation (CPI): 3.3%
FDI Inflow: $988.8 million
Public Debt: 43.9% of GDP
How Do We Measure Economic Freedom?
See page 475 for an explanation of the methodology 2013 data unless otherwise noted.
or visit the Index Web site at heritage.org/index. Data compiled as of September 2014.
115
BAHRAIN (continued)
THE TEN ECONOMIC FREEDOMS
1–Year
Score Country World Average Rank Change

RULE OF Property Rights 60.0 41st 0

LAW Freedom from Corruption 48.0 57th –1.4
0 20 40 60 80 100
Bahrain’s long-serving prime minister, uncle of the king, approved legislation in 2014 to fight
corruption and prevent the misuse of public money. Critics view the new laws as an effort to
blunt a renewed, high-profile anti-corruption drive initiated by the crown prince in late 2013.
The legal system adequately protects and facilitates acquisition and disposition of property
rights. Expropriation is infrequent, and private property is secure.

GOVERNMENT Fiscal Freedom 99.9 1st 0

SIZE Government Spending 73.1 77th +1.7
0 20 40 60 80 100
Bahrain has no tax on individual income. Most businesses are exempt from taxation, but oil
companies must pay a 46 percent income tax. Other taxes include a stamp tax and a tax on prop-
erty purchases. Overall tax revenue amounts to less than 4 percent of gross domestic product.
Government expenditures equal about 30 percent of the domestic economy, and public debt
is equivalent to about 44 percent of GDP.

REGULATORY Business Freedom 72.5 53rd –3.8

EFFICIENCY Labor Freedom 83.1 16th +1.1
Monetary Freedom 74.2 119th –4.2
0 20 40 60 80 100
Bahrain’s commercial law system is relatively straightforward, but the regulatory environment
lacks coordination and efficient enforcement of regulations. Following labor reforms in recent
years, labor market flexibility has been relatively well maintained. Bahrain’s subsidy programs,
consuming more than 10 percent of GDP, cover natural gas for industrial users, food items,
water, and electricity.

OPEN Trade Freedom 78.6 77th 0

MARKETS Investment Freedom 65.0 68th –10.0
Financial Freedom 80.0 3rd 0
0 20 40 60 80 100
Bahrain has a 5.7 percent average tariff rate. Government procurement policies can favor
domestic companies. Foreign investment in several sectors is restricted. Bahrain’s more than
400 banks and financial institutions account for over a quarter of GDP. Foreign and domestic
investors have access to a wide range of financial services. Capitalization of the banking system
remains high, and nonperforming loans are declining.

Long-Term Score Change (since 1995)

GOVERNMENT REGULATORY
RULE OF LAW SIZE EFFICIENCY OPEN MARKETS

Property Rights 0 Fiscal Freedom +0.5 Business Freedom –27.5 Trade Freedom +0.2
Freedom from –22.0 Government +1.4 Labor Freedom +43.1 Investment Freedom +15.0
Corruption Spending Monetary Freedom –12.5 Financial Freedom +10.0

116 2015 Index of Economic Freedom