Economic Overview

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. Bahrain experienced strong growth in 2022 (+4.9%); however, growth moderated to 2.7% in 2023, driven by non-oil GDP expanding by 3.3%, attributed to fiscal consolidation, increased interest rates, and a base effect from strong growth in 2022. Going forward, GDP is expected to pick up to 3.6% in 2024 and 3.2% the following year, on the back of higher energy prices, easing monetary policy, and stronger export growth (IMF). Private consumption is poised to remain the primary growth driver, constituting approximately 40% of GDP, buoyed by alleviating inflationary pressures. However, notable uncertainty persists in the forecast, stemming from factors such as oil price fluctuations, international financial instability, ongoing tightening measures, and a potential slowdown in global growth.

In 2023, Fitch projected that the general government budget deficit would narrow to 4.9% of GDP, down from 5.9% in 2022. Despite a decline of approximately 3% in oil revenue, revenues were expected to increase. Fitch also forecasted a similar trend for 2024, projecting a budget deficit of 3.4% of GDP. The authorities aimed for a balanced budget with an oil price of USD 60 per barrel in 2024, a considerable reduction from the USD 105 fiscal breakeven oil price in 2022. According to Fitch, the budget for 2023-24 outlined a credible strategy for substantially enhancing the non-oil balance. This strategy encompassed increased revenues from newly implemented and revised taxes and fees, augmented revenues from gas sales achieved through enhanced collection methods and higher volumes, as well as elevated dividends from state-owned enterprises (SOEs). Despite robust fiscal reform efforts and a reduction in budget deficits, the debt-to-GDP ratio rose to 121.2% in 2023, up from 117.6% the previous year. Also, thanks to the positive impact of subsidies, inflation decreased in 2023, averaging an estimated 1%, following a 3.6% rate in 2022 (IMF). Over the forecast horizon, inflation is expected to remain between 1.4%-1.8%.

Being a small country, Bahrain relies heavily on the foreign workforce. In the second quarter of 2023, total employment reached 770,129 workers. Foreign workers' employment accounted for 609,028 workers by the quarter's end, marking an 8.1% annual increase. Meanwhile, Bahraini employment stood at 161,101 workers, reflecting a slight annual decline of 0.2% (data Labour Market Regulatory Authority). According to the latest figures available from the IMF, unemployment stood at 5.4% as of end-2022. Overall, Bahrain has a high GDP per capita (PPP), estimated at USD 61,248 in 2022 by the World Bank.

Foreign Trade

The Kingdom of Bahrain is very open to foreign investment and has one of the highest FDI stock-to-GDP ratios in the region. According to UNCTAD's World Investment Report 2023, FDI in Bahrain increased by 9.7% year on year in 2022, to USD 1.95 billion. In the same period, the FDI stock reached USD 35.4 billion, around 79.8% of the country’s GDP. According to governmental data, FDI inflows in 2022 were dominated mostly by electricity, gas steam & air conditioning supply, manufacturing and financial & insurance activities sectors. Kuwait was the main investor, followed by the UAE and Guernsey. Data from the Bahrain Economic Development Board show that the agency secured USD 1.7 billion in FDI projects in 2023. In 2023, the financial services sector saw unprecedented investment, showcasing its robustness and capacity to attract top global players, overtaking oil and gas to become Bahrain's leading economic contributor, comprising 17.5% of real GDP. The ICT sector also garnered significant investment interest, with manufacturing following closely behind.

Bahrain enjoys an open and attractive economic and regulatory environment for international companies looking for a gateway to Gulf and Middle East markets. The country has the lowest corporate and personal taxes in the Gulf, without any restrictions for free trade zones. Foreign business ownership is fully permitted in more than 95% of all economic activities, eliminating the need to resort to a local partner in most cases. There are no limitations on the repatriation of capital, profits, or dividends, except for income generated by companies in the oil and gas sector, which are subject to a 46% tax rate on profits. The excellence of the country’s logistical infrastructure is also a major factor of attraction. Moreover, Bahrain offers a large, highly skilled pool of financial workers, a regulatory structure that is both advanced and internationally well-regarded, and a physical connection to Saudi Arabia – by far the largest economy in the Gulf. Beside a strong regional competition, FDI in Bahrain has been limited by the slow advancement of the privatization program and a rigid labor market. The absence of true reconciliation between the Sunni monarchy and the predominantly Shiite opposition constitutes a hindrance to FDI. Moreover, new emerging trade centers in the Gulf increased the competition to become a regional financial crossroad. Bahrain is a significant economic hub in the Gulf Cooperation Council (GCC) area and offers one of the most accommodating investment climates to draw in foreign companies. The national currency is freely transferable and tied to the US dollar. Bahrain ranks 67th among the 132 economies on the Global Innovation Index 2023 and 54th out of 184 countries on the latest Index of Economic Freedom.

COVID-19 Country Response

Travel restrictions

Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.

Import & export restrictions

A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.

Economic recovery plan

For the general overview of the key economic policy responses to the COVID-19 pandemic (fiscal, monetary and macroeconomic) undertaken by the Bahrain government, please consult the country's dedicated section in the IMF’s Policy Tracker platform.

Support plan for businesses

For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.