In 1783, the Sunni Al-Khalifa family took power in Bahrain. In order to secure these holdings, it entered into a series of treaties with the UK during the 19th century that made Bahrain a British protectorate. The archipelago attained its independence in 1971. A steady decline in oil production and reserves since 1970 prompted Bahrain to take steps to diversify its economy, in the process developing successful petroleum processing and refining, aluminum production, and hospitality and retail sectors, and also to become a leading regional banking center, especially with respect to Islamic finance. Bahrain's small size, central location among Gulf countries, and proximity to Iran require it to play a delicate balancing act in foreign affairs among its larger neighbors.
Middle East, archipelago in the Persian Gulf, east of Saudi Arabia
oil, associated and nonassociated natural gas, fish, pearls
Population - distribution
smallest population of the Gulf States, but urbanization rate exceeds 90%; largest settlement concentration is found on the far northern end of the island in and around Manamah and Al Muharraq
Arabic (official), English, Farsi, Urdu
MANAMA (capital) 411,000 (2015)
- Conventional long form
- Kingdom of Bahrain
- Conventional short form
- Local long form
- Mamlakat al Bahrayn
- Local short form
- Al Bahrayn
- Geographic coordinates
- 26 14 N, 50 34 E
- Time difference
- UTC+3 (8 hours ahead of Washington, DC, during Standard Time)
has not submitted an ICJ jurisdiction declaration; non-party state to the ICCt
Low oil prices have generated a budget deficit of at least a $4 billion deficit in 2016, nearly 14% of GDP. Bahrain has few options for covering this deficit, with meager foreign assets and a constrained borrowing ability. In the last year the three major US credit agencies downgraded Bahrain’s sovereign debt rating to “junk” status, citing persistently low oil prices and the government’s inability to more effectively cut spending.
- External debt stocks
- US$ 10,729,125,000
- Total tax rate (% of commercial profits)
- Real Interest Rate
- Manufacturing, value added (% of GDP)
- Current Account Balance
- US$ 1,123,670,213
- Labor Force, Total
- Employment in Agriculture
- Employment in Industry
- Employment in Services
- Unemployment Rate
- Imports of goods and services
- US$ 22,303,191,489
- Exports of goods and services
- US$ 26,327,127,660
- Total Merchandise Trade
- FDI, net inflows
- US$ -1,462,765,957
- Commercial Service Exports
- US$ 3,335,106,383
fruit, vegetables; poultry, dairy products; shrimp, fish
petroleum processing and refining, aluminum smelting, iron pelletization, fertilizers, Islamic and offshore banking, insurance, ship repairing, tourism
- petroleum and petroleum products, aluminum, textiles
- Saudi Arabia 3.5%, UAE 2.3%, US 2.2% (2015)
- crude oil, machinery, chemicals
- Saudi Arabia 28.9%, US 9.4%, China 7.5%, Japan 6.6%, Australia 5.1%, India 4.9% (2015)
- Country Risk Rating
- Political and economic uncertainties and an occasionally difficult business environment can affect corporate payment behavior. Corporate default probability is appreciable.
- Business Climate Rating
- The business environment is acceptable. Corporate financial information is sometimes neither readily available nor sufficiently reliable. Debt collection is not always efficient and the institutional framework has shortcomings. Intercompany transactions may thus run into appreciable difficulties in the acceptable but occasionally unstable environments rated A4.
- Fairly diversified (oil, gas, aluminum, petrochemicals, financial services, tourism) and open economy
- Presence of the main American naval base in the region (U.S. 5th Fleet)
- Diminishing hydrocarbon reserves and exposure to their price fluctuation
- Very acute socio-political tensions between the Sunnite minority in power and the majority Shiite population
- Uncertain regional geopolitical environment
- Dependence on foreign labor
In 2016, Bahrain's economy proved resilient faced with the sluggish oil market, thanks to an expansionary and counter-cyclical fiscal policy. Aid amounting to USD 5.7 billion granted through the GCC development assistance fund has enabled the Kingdom to maintain substantial investment in the construction of a pipeline project with Saudi Arabia and in the extension of Manama airport. However, activity is expected to slow in 2017. Weak household and investor confidence is likely to limit the expansion of the private sector, even if some sectors will continue to demonstrate dynamism. After being hit by declining mineral prices, the aluminum sector is expected to benefit from major investment after Alba (Bahrain Aluminum) secured a USD 1.5 billion syndicated international bank loan. The construction sector will also benefit from the positive impact of investment. Finally, the financial sector could suffer from weak Saudi economic performance. Inflation will remain steady in 2017, after rising strongly in 2016 as a result of the removal of energy subsidies.
As oil revenues account for over 80% of government income, oil market downturn impacts strongly on Bahrain's public accounts, which have been in deficit since 2009. In 2016, the public deficit remained high despite the fiscal effort agreed by the authorities. Increased oil production in Q1 2016 together with curbs on current spending only slightly mitigated the effect of the contraction in income in 2016. In 2017, the authorities are expected to continue their austerity policy by increasing taxes and administration fees. Likewise, continuing the business reforms of the past two years, remaining subsidies will gradually be reduced. That being sol, political instability in the kingdom will limit the options for more structural fiscal adjustment similar to that observed in the other GCC countries. Civil service salaries, which account for a large part of public spending, are not likely to be cut. Investment in housing for disadvantaged households will be maintained, but will continue to be partly financed by GCC aid. Bahrain is expected to continue borrowing to finance its substantial public deficit. The public debt will grow considerably, but remains chiefly domestic and composed of long-term bonds. However, the share of external finance is increasing in a context of rising debt costs following the downgrade of the sovereign debt rating to speculative by the various rating agencies.
The current account deficit widened in 2016, but it is expected to narrow slightly in 2017 following the expected rise in oil prices. Higher exports will help improve the trade balance. Profit repatriation by foreign companies as well as lower remittances by foreign workers will, however, fuel the deficit in the balance of services and income. The widening current account deficit in 2016 led to a decline in international reserves, which were equivalent to 1.3 months of imports. Nevertheless, bond issuance of USD 2 billion in October 2016 should ease the pressure on the foreign exchange reserves. The expected rise in the US interest rate is, moreover, likely to increase speculative pressure against the peg to the dollar at a time when the kingdom has the lowest reserves among oil exporters.
The government continues to respond to protests by arresting Shiite militants and stripping them of Bahraini nationality. The tensions between the majority Shiite population and the Sunni ruling elite were further heightened in 2016 following the dissolution of Al wefaq, the main Shiite opposition movement, and confiscation of its assets. Weak public resources and the squeeze on subsidies raise fears of a social protest movement coming on top of the political protests. This situation is adversely affecting the business climate, which up to this point had been reasonably favorable, thanks to efforts to improve local skill levels, stimulate the private sector and attract more foreign investment.