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- GDP (PPP):
- $40.6 billion
- 4.9% growth
- 3.4% 5-year compound annual growth
- $34,584 per capita
- Inflation (CPI):
- FDI Inflow:
Bahrain’s economic freedom score is 73.4, making its economy the 18th freest in the 2015 Index. Its overall score has decreased by 1.7 points due to declines in investment freedom, monetary freedom, and business freedom. 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 past five years, Bahrain’s economic freedom score has declined by 4.3 points, with a particularly sharp drop following civil unrest in 2011. In the 2015 Index, the kingdom registered the 10th largest score decline. Renewed efforts to enhance the foundations of economic freedom through firm institutionalization of property rights and greater transparency remain critical to ensuring long-term economic development and a successful transition to a more open society.
The recent disappointing trend in economic freedom, however, masks significant score gains since 1995 when Bahrain was first graded in the Index. Impressive long-term improvements in financial, investment, and labor freedoms have helped the kingdom transform itself into a competitive trade and financial hub that leads the region in many areas.
Bahrain gained independence in 1971 and became a constitutional monarchy in 2002. In 2011, Shia activists launched a campaign demanding a new constitution and greater political power. When modest concessions and efforts at dialogue failed to stem the demonstrations, King Hamad authorized a crackdown that was subsequently 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 several law enforcement, intelligence, and judicial reforms. Efforts have been made to reduce dependence on declining oil reserves by encouraging 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.
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.
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 property 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.
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.
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.