Bahrain is characterized by a diversified economic structure supported by modern, integrated infrastructure and advanced legislation. The Kingdom embraces economic freedom as a strategic choice to attract domestic and foreign investments, enhancing its status as a prominent financial and tourism center in the Middle East. This analysis explores the current state of Bahrain’s GDP, examining key economic indicators, sectoral contributions, and the challenges and opportunities ahead. With a focus on resilience and diversification, this article highlights how Bahrain positions itself for sustainable growth in a rapidly changing global landscape, emphasizing the vital role of various industries in shaping the Kingdom’s economic future.
The World Bank reports that Bahrain’s diversification efforts are progressing well, with the non-hydrocarbon sector demonstrating strong performance. Ongoing fiscal reforms have contributed to improved fiscal and current account balances in 2024. However, the Kingdom still grapples with fiscal challenges, particularly high debt levels and substantial financing requirements. Given current commodity price forecasts, further consolidation measures will be necessary to maintain a sustainable fiscal position in the medium term. Key downside risks to this outlook include volatility in the oil market, climate change impacts, and the effects of increased geopolitical tensions.
Overview of Bahrain’s Economy
The World Bank recognizes Bahrain as a high-income economy, reflecting its robust economic framework and strategic positioning in the Gulf region. The country’s Gross Domestic Product (GDP) has shown a consistent upward trajectory, with a growth rate of 2.80 percent anticipated by the end of 2024. This growth underscores Bahrain’s resilience and adaptability in a dynamic global market.
The economy is broadly categorized into two main industries: Goods Producing and Services Producing. The Services Producing Industry is particularly significant, accounting for 58.2 percent of the total GDP. Within this sector, financial services, transport & communications, wholesale & retail trade & repairs, and real estate stand out as the largest segments. These industries drive economic activity and provide substantial employment opportunities, contributing to Bahrain’s overall economic stability and growth.
Current economic performance
Preliminary data from the Information and eGovernment Authority indicates that Bahrain’s real GDP growth, measured at constant prices to adjust for inflation, accelerated to 2.3 percent year-on-year (YoY) in the first half of 2024, reaching a value of BHD7,333.2 million. The non-oil sector showed robust growth of 3.1 percent, while the oil sector experienced a decline of 2.1 percent YoY. In nominal terms, GDP recorded a growth of 2.9 percent YoY, amounting to BHD8,663.5 million, driven by a 2.8 percent increase in non-oil activities and a 3.6 percent rise in oil activities.
Quarterly insights
In the second quarter of 2024, Bahrain’s GDP grew by 1.3 percent YoY in real terms, totaling BHD3,721.9 million. On a quarterly basis, this growth highlights the changes in economic performance between different quarters. This growth was primarily supported by non-oil activities, which expanded by 2.8 percent, while the oil sector saw a significant decline of 6.7 percent YoY. In nominal terms, GDP for Q2 2024 increased by 2.4 percent YoY, with contributions from both sectors, where non-oil activities rose by 2.7 percent and oil activities by 0.5 percent.
Non oil sector contributions to GDP
The non-oil sector is pivotal in Bahrain’s economy, contributing 85.2 percent to real GDP in Q2 2024, valued at BHD3,170.0 million. This value represents the total value of final goods and services produced, measured at constant prices, highlighting the importance of understanding economic growth through output measurement. This reflects ongoing efforts toward economic diversification across various industries. Key contributors to this growth include:
- Financial and insurance activities: 17.1 percent of real GDP
- Manufacturing: 14.4 percent
- Public administration: 8.4 percent
- Construction: 6.4 percent
- Transportation and storage: 5.0 percent
- Education: 4.8 percent
- Wholesale and retail trade: 4.0 percent
- Real estate activities: 3.9 percent
- Information and communication: 3.8 percent
- Business activities: 3.5 percent
- Human health and social work: 3.0 percent
- Accommodation and food services: 1.7 percent
Non-oil sectors in Bahrain contributed to 79.2 percent of the country’s total GDP, amounting to $29 billion in 2013. The financial and banking sector was one of the most important non-oil sectors. Bahrain had 406 financial institutions, contributing 16.7 percent to total GDP. Additionally, manufacturing industries contributed 14.5 percent, transport and communications contributed 6.8 percent, construction contributed 6.6 percent, real estate contributed 4.1 percent, and hotels and restaurants contributed 2.4 percent of total GDP. Other service industries accounted for 18.7 percent. The oil sector contributed 20.8 percent of total GDP. Bahrain’s annual economic growth averaged 5 percent.
Oil sector performance
The oil sector faced challenges, recording a 2.1 percent decline in real terms during H1 2024, valued at BHD1,061.0 million. However, nominal growth of 3.6 percent was noted due to higher global oil prices. The average daily oil production from the offshore Abu Sa’afa field decreased by 9.8 percent YoY, while extraction from the onshore Bahrain field slightly declined by 0.3 percent.
Economic Diversification
Bahrain has been making concerted efforts to diversify its economy, reducing its reliance on the oil sector and fostering growth in other areas. The non-oil sector has become a focal point of these diversification strategies, with significant investments directed towards the banking and tourism sectors. The Bahraini Dinar, noted for being the second-highest-valued currency unit globally, reflects the strength and stability of the country’s financial system.
The government has launched various initiatives to spur economic growth, including the development of new resorts and the expansion of the financial sector. Additionally, these efforts are aimed at attracting foreign investment and boosting domestic economic activities. According to the International Monetary Fund (IMF), Bahrain’s non-oil sector is expected to be a major driver of growth in 2024, with a projected growth rate of 3.5 percent. This positive outlook underscores the success of Bahrain’s diversification policies and its commitment to sustainable economic development.
Challenges and Risks
Despite significant strides in economic diversification, Bahrain continues to face several challenges and risks. The oil sector remains a substantial contributor to the country’s GDP, making the economy susceptible to fluctuations in oil prices. This dependency on oil exports exposes Bahrain to external shocks, which can have far-reaching impacts on its economic stability.
The International Monetary Fund (IMF) has highlighted the need for Bahrain to address its fiscal challenges, particularly by reducing its budget deficit and broadening its revenue base. These fiscal reforms are crucial for maintaining economic stability and ensuring long-term growth. Additionally, Bahrain’s high population growth rate and limited natural resources present ongoing challenges to its economic sustainability. Addressing these issues will require strategic planning and continued efforts to diversify the economy and enhance its resilience against external economic pressures.
Future projections
Looking ahead, the Ministry of Finance and National Economy projects a 3.0 percent growth in Bahrain’s GDP for 2024, primarily driven by non-oil activities expected to expand by 3.8 percent. Furthermore, by 2025, real GDP growth is anticipated to accelerate to 3.8 percent, with non-oil activities projected to grow by 4.5 percent as the Bapco Modernization Program progresses.
In parallel, the IMF highlighted that looking forward, growth is anticipated to remain at 3 percent in 2024 and rise to 3.5 percent in 2025, with refinery upgrades in the manufacturing sector and a pick-up in private sector credit growth, related to easing of financing conditions, supporting greater private investment. Medium-term real GDP growth is further projected at around 3 percent, driven by nonhydrocarbon GDP, accounting for close to 90 percent of the economy by 2029. CPI inflation is projected to rise to 1.2 percent in 2024, before steadily converging to 2 percent over time. However, uncertainty is high and downside risks large, including from potential escalation and expansion of regional conflicts, commodity price volatility, and greater geoeconomic fragmentation.
Bahrain’s economic freedom
According to the 2024 Index of Economic Freedom released by the Heritage Foundation of America, Bahrain has an economic freedom score of 63.4, ranking it as the 54th freest economy in the index. Moreover, this score reflects an increase of 0.9 points from the previous year, placing Bahrain 4th out of 14 countries in the Middle East/North Africa region. The country’s score surpasses both global and regional averages, categorizing its economy as “moderately free.”
Bahrain performs well across several of the four pillars of economic freedom. The investment framework is streamlined, and the commercial law system is relatively straightforward. Despite challenges in the global economic landscape, Bahrain remains a vibrant business hub, supported by a competitive regulatory environment that fosters openness to international commerce. To ensure continued progress, it is essential to strengthen the foundations of economic freedom by further enhancing the rule of law and fiscal policies.
FAQs about Bahrain
What is Bahrain’s Economic Vision 2030?
Bahrain’s Economic Vision 2030 serves as the nation’s roadmap to success. Launched in October 2008 by His Majesty King Hamad bin Isa Al Khalifa, this comprehensive vision provides a clear direction for the ongoing development of Bahrain’s economy. At its core, it emphasizes a shared goal of enhancing the quality of life for every Bahraini.
What is Bahrain doing about the SDGs?
The Kingdom of Bahrain has made substantial strides toward achieving the Sustainable Development Goals (SDGs) for 2023. Since the Millennium Development Goals (MDGs) launch in 2000, Bahrain has steadily progressed and successfully met all its MDG targets.
The government has also prioritized sustainability in its policy framework, as reflected in the current Government Plan (2023-2026), aptly named “From Recovery to Sustainable Development.” Bahrain’s 2023 Voluntary National Review serves as a critical assessment at the midpoint of the SDGs and the 2030 Agenda, providing a comprehensive overview of the nation’s progress in implementing these goals.
What is Bahrain doing in terms of new technologies?
The Kingdom of Bahrain has not only embraced emerging technologies such as artificial intelligence, blockchain, IoT, and big data analytics but has also effectively implemented them across various sectors. This commitment to modernization is highlighted by initiatives like the Bahrain International Conference for Artificial Intelligence in the Judiciary, demonstrating the Kingdom’s dedication to integrating modern technologies within the legal sector, especially in court and case services.
