2017 Index of Economic Freedom

Bahrain

overall score68.5
world rank44
Rule of Law

Property Rights64.2

Government Integrity55.5

Judicial Effectiveness53.7

Government Size

Government Spending69.8

Tax Burden99.9

Fiscal Health12.0

Regulatory Efficiency

Business Freedom69.4

Labor Freedom78.7

Monetary Freedom80.7

Open Markets

Trade Freedom82.8

Investment Freedom75.0

Financial Freedom80.0

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Quick Facts
  • Population:
    • 1.2 million
  • GDP (PPP):
    • $64.8 billion
    • 3.2% growth
    • 3.7% 5-year compound annual growth
    • $50,095 per capita
  • Unemployment:
    • 1.2%
  • Inflation (CPI):
    • 1.8%
  • FDI Inflow:
    • $-1462.8 million
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Despite challenging regional and domestic environments, Bahrain continues to be a financial and business hub in the Middle East and North Africa. High levels of global trade and investment activity are sustained by a competitive and efficient regulatory environment. Reforms in the existing Commercial Companies Law have facilitated foreign investment and ownership of companies.

Expansionary spending policy since 2009 has resulted in widening budget deficits and rising debt, undermining overall fiscal health. In addition to reining in public spending and implementing additional structural reforms, action to firmly institutionalize the rule of law and enhance judicial independence and transparency is urgently needed.

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Background

Bahrain has been a constitutional monarchy since 2002. In 2011, Shia activists demanded a new constitution and greater political power. When modest concessions and efforts at dialogue failed to stem the demonstrations, King Hamad bin Isa Al Khalifa authorized a crackdown that was subsequently supported by Gulf Cooperation Council security forces. The government has sought to ease tensions through a national dialogue led by the crown prince and by introducing law enforcement, intelligence, and judicial reforms, but protests and sporadic violence continue. The oil industry continues to provide over 70 percent of budget revenues. Home to many multinational firms that do business in the region, Bahrain has a free trade agreement with the United States.

Rule of LawView Methodology

Property Rights 64.2 Create a Graph using this measurement

Government Integrity 55.5 Create a Graph using this measurement

Judicial Effectiveness 53.7 Create a Graph using this measurement

Bahrain’s legal system adequately protects and facilitates the right to acquire and dispose of property. Expropriation is infrequent. The Al Khalifa royal family appoints all judges, and the judicial system is regarded as corrupt. Government tendering procedures are not always entirely transparent, and contracts are not always awarded based solely on price and technical merit. Petty corruption, however, is relatively rare.

Government SizeView Methodology

Bahrain imposes no taxes on personal income. Most companies are not subject to a corporate tax, but a 46 percent tax is levied on oil companies. The overall tax burden equals 3.8 percent of total domestic income. Government spending has amounted to 31.7 percent of total output (GDP) over the past three years, and budget deficits have averaged 8.7 percent of GDP. Public debt is equivalent to 63.3 percent of GDP.

Regulatory EfficiencyView Methodology

The regulatory framework is relatively streamlined, but minimum capital requirements for starting a firm are higher than the level of average annual income. Although there is no nationally mandated minimum wage, wage increases have exceeded overall productivity growth. In 2016, slumping global oil prices forced the government to reduce subsidies on gasoline, diesel and kerosene, natural gas for industrial users, food items, water, and electricity.

Open MarketsView Methodology

Trade is extremely important to Bahrain’s economy; the value of exports and imports taken together equals 115 percent of GDP. The average applied tariff rate is 3.6 percent, and domestic firms receive some preferences with respect to government procurement. The banking sector remains well-capitalized and liquid enough to navigate low oil prices. Foreign and domestic investors have access to a wide range of financial services.

Country's Score Over Time

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Regional Ranking

rank country overall change
1United Arab Emirates76.94.3
2Qatar73.12.4
3Israel69.7-1.0
4Bahrain68.5-5.8
5Jordan66.7-1.6
6Kuwait65.12.4
7Saudi Arabia64.42.3
8Oman62.1-5.0
9Morocco61.50.2
10Tunisia55.7-1.9
11Lebanon53.3-6.2
12Egypt52.6-3.4
13Iran50.57.0
14Algeria46.5-3.6


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