2014 Index of Economic Freedom

Bahrain

overall score75.1
world rank13
Rule of Law

Property Rights60.0

Freedom From Corruption49.4

Limited Government

Government Spending71.4

Fiscal Freedom99.9

Regulatory Efficiency

Business Freedom76.3

Labor Freedom82.0

Monetary Freedom78.4

Open Markets

Trade Freedom78.6

Investment Freedom75.0

Financial Freedom80.0

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Quick Facts
  • Population:
    • 1.2 million
  • GDP (PPP):
    • $33.1 billion
    • 3.9% growth
    • 4.0% 5-year compound annual growth
    • $28,744 per capita
  • Unemployment:
    • 3.4%
  • Inflation (CPI):
    • 1.2%
  • FDI Inflow:
    • $891.2 million
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Bahrain’s economic freedom score is 75.1, making its economy the 13th freest in the 2014 Index. Its overall score has decreased by 0.4 point due to slight deteriorations in labor 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 country’s 10 economic freedoms—financial freedom, investment freedom, and labor freedom—have 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.

Bahrain’s 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 country’s ongoing evolution.

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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.

Rule of LawView Methodology

Property Rights 60.0 Create a Graph using this measurement

Freedom From Corruption 49.4 Create a Graph using this measurement

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.

Limited GovernmentView Methodology

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 EfficiencyView Methodology

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 MarketsView Methodology

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, Bahrain’s 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.

Country's Score Over Time

Bar Graph of Bahrain Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Bahrain to other economic country groups

Regional Ranking

rank country overall change
1Bahrain75.1-0.4
2United Arab Emirates71.40.3
3Qatar71.2-0.1
4Jordan69.2-1.2
5Israel68.41.5
6Oman67.4-0.7
7Kuwait62.3-0.8
8Saudi Arabia62.21.6
9Lebanon59.4-0.1
10Morocco58.3-1.3
11Tunisia57.30.3
12Yemen55.5-0.4
13Egypt52.9-1.9
14Algeria50.81.2
15Iran40.3-2.9


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