Country profile Bahrain (by Naeem Saba)

1CountryProfile of Bahrain | P a g e
Contents
1.0 INTRODUCTION ............................................... 2
2.0 MACROECONOMIC STUDY...................................3
2.a Major Macroeconomic Indicators .......................3
2.b Fiscal Indicators ................................................4
2.c Monetary indicators ...........................................6
2.d International indicators.......................................7
3.0 Critical Problems................................................9
4.0 Future Prospects.............................................. 11
5.0 Conclusion...................................................... 12
6.0 References...................................................... 13

Kingdom Of Bahrain
1.0 INTRODUCTION
Bahrainis the smallestmemberintermsof landmassof the GCC. It compromisesof 33
islands.Outof those,the largestisthe BahrainIsland.It has a total area of 655 kmsquare
and itis nothavingany landboundarywithanothercountry.
Bahrainis havinga populationof 738,004 withthe majorityof thisbeinginthe age groupof
15-64 years.The official currencyof Bahrainisthe Bahraini Dinar(BD) and in thisreportthe
exchange rate forUS dollarswasfixedat$2.65555 per 1 BD.
Bahrainhas beenruledbya monarchysince 1861 afterthe thenrulerShiekhMohammedAl
Khalifasignedanagreementwiththe Britishprovidingafriendshipandprotectionpact.
Since that time till nowBahrainhasbeenruledbythe descendantsof ShiekhMohammedAl
Khalifa.
The country has achievedarankingof 108 incomparisontothe worldintermsof GDP.
The Bahraini populationispredominantlyShia,whereasthe ruling
familyandmuchof the political andbusinesseliteare Sunni,asituationthat
contributestopolitical andsocial tensions.
Saudi Arabiaisthe majorimportpartnerfor Bahrainaccountingto 26% of the imports.
While Indiarepresentsthe major exportspartnerforBahrainaccountingfor4.2% of the
exports.The highimportamountfromSaudi Arabiacan be contributedtothe crude oil it
importsinorderto refine asmostof thisisattainedformSaudi Arabia. Inspite of havingthe
smallestGDPin termsof amountfor the region,the GDPper headforBahrain isremarkably
highdue to itssmall population.

2.0 MACROECONOMIC STUDY
This section will highlight different macroeconomic indicators.
2.a Major Macroeconomic Indicators
The tables below depicts the real GDP, real GDP growth rate and the current account
balance of Bahrain over the span of 5 years from 2005 to 2009.
Years Real GDP Real GDP growth
Rate
Current Account
Balance
2005 $10,231,834,150 7.853% $1,476,000,000
2006 $10,911,654,950 6.653% $2,188,000,00
2007 $11,793,297,550 8.069% $2,907,000,000
2008 $12,512,951,600 6.119% $2,256,000,000
2009 $12,874,106,400* 2.888%* $825,000,000
* IMF estimates
10,231,834,150
10,911,654,950
11,793,297,550
12,512,951,600
12,874,106,400
10,200,000,000
10,700,000,000
11,200,000,000
11,700,000,000
12,200,000,000
12,700,000,000
2005 2006 2007 2008 2009
Currencyin$
Years
Real GDP (Bahrain)
Real GDP

2.b Fiscal Indicators
The tables below show the ratios of Government expenditures to nominal GDP,
Government revenues to nominal GDP and Gross fiscal deficit to nominal GDP. As
well as the levels of the Government revenues and expenditure. Ratio of Gross fisical
deficit to nominal GDP was derived by first deriving the gross fiscal deficit (or surplus)
and then taking it as a percentage of the GDP.
Years Government
expenditures to
nominal GDP
Revenues to
nominal GDP
Gross fiscal
deficit to
nominal GDP
2005 27.930% 33.026% 28.706%
2006 28.480% 31.322% 23.645%
2007 28.703% 29.842% 19.227%
2008 27.998% 32.854% 14.747%
2009 31.423% 22.550% 26.578%
$1,476,000,000
$218,800,000
$2,907,000,000
$2,256,000,000
$825,000,000
2,000,000
502,000,000
1,002,000,000
1,502,000,000
2,002,000,000
2,502,000,000
2005 2006 2007 2008 2009
Currencyin$
Years
Current Account Balance (Bahrain)
Current Account
Balance

27.93% 28.48% 28.70% 28.00%
31.42%
33.03%
31.32%
29.84%
32.85%
22.55%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
2005 2006 2007 2008 2009
Percentages
Years
Fiscal Indicators
Government
expenditures to
nominal GDP
Revenues to nominal
GDP
28.71%
23.65%
19.23%
14.75%
26.58%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
2005 2006 2007 2008 2009
Percentages
Years
Gross fiscal deficit to nominal GDP
Gross fiscal
deficit to nominal
GDP

Year Government
Revenue
Rate
of
Change
Government
Expenditure
Rate
of
Change
Budget
Deficit/
Surplus
Ratio as of
nominal
GDP
Nominal
GDP
2005 $4,437 28.54% $3,752 9.70% $685 5.092% $13,456
2006 $4,958 11.73% $4,506 20.10% $451 2.849% $15,848
2007 $5,505 11.03% $5,295 17.50% $210 1.136% $18,468
2008 $7,186 30.54% $6,124 15.65% $1,062 4.851% $21,897
2009 $4,637 -35.48% $6,461 5.51% $-1,824 8.860% $20,590
*All amountsare in Billion$
The table above showshowin2009 due to decliningoil pricesGovernmentrevenue has
declinedby35.48% whichhas inturn ledtoa deficitfor $1,824,000 whichisthe firstdeficit
to be recordedsince 2002.
2.c Monetary indicators
Rate of growthof moneysupply andrate of inflation:
Year Rate of Growth of MoneySupply Rate of Inflation
2005 22.0% 2.6%
2006 14.9% 2.0%
2007 39.3% 3.3%
2008 19.7% 3.5%
2009 5.8% 2.8%
It isnotedhere that there wasa surge in moneysupplyin2007 and thatwas majorlydue to
risingoil pricesaswell asit can be partiallyspeculatorsbettingonaunitedGCC currency.
22.00%
14.90%
39.30%
19.70%
5.80%
2.60% 2.00% 3.30% 3.50% 2.80%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2005 2006 2007 2008 2009
Percentages
Years
Monetary Indicators
Rate of Growth of
Money Supply
Rate of Inflation

2.d International indicators
The tablesand graphsbefore indicate opennessindex,levelsof bothimportsandexportsas
well astheircorrespondingrate of growth,aswell aslaterlevel of foreignexchange
reserves.Forthe opennessindexatfirstthe sumof the importsand exports were calculated
and thenrelatedtothe correspondingGDPforeach year.Thishas shownBahrainto attaina
relativelyhighopennessindexmuchsimilartothose of placesdependingonimportand
exportsuchas Hong Kong.
Year Imports Rate of
Change
Exports Rate of
Change
Sum of
Imports
&
Exports
Openness
Index
2005 $9,379 27.20% $10,227 35.51% $19,605 146
2006 $9,939 5.97% $12,182 19.12% $22,120 140
2007 $10,909 9.76% $13,613 11.75% $24,522 133
2008 $14,225 30.39% $17,289 27.01% $31,514 144
2009 $9,598 -32.52% $11,856 -31.43% $21,454 104
$9,379
$9,939
$10,909
$14,225
$9,598
$10,227
$12,182
$13,613
$17,289
$11,856
9,000
10,000
11,000
12,000
13,000
14,000
15,000
16,000
17,000
18,000
2005 2006 2007 2008 2009
Currencyin$
Years
International Indicators:TradeBalance
Import
s
Exports

Year Foreign Exchange Reserve Growth Rate in %
2005 $1,873 18.44%
2006 $2,691 43.66%
2007 $4,099 52.35%
2008 $3,801 -7.27%
2009 $3,528 -7.18%
$1,873
$2,691
$4,099
$3,801
$3,528
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2005 2006 2007 2008 2009
Currencyin$
Years
Foreign Exchange Reserve
Foreign Exchange
Reserve
18.44%
43.66%
52.35%
-7.27% -7.18%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
2005 2006 2007 2008 2009
Percentages
Years
Growth Rate in Percentage
Growth
Rate

3.0 Critical Problems
The country isverymuch dependentonoil.Muchof the exportcompromisesof thisproduct
and inface of that itstrade balance can be veryvolatile.While inthe recentyearsithas
benefitedfrom increasingoil priceswhichinturnledtoa surge inthe export.But ithas been
shownthat whenthe oil pricesslumpedasisthe case for2008-2009 the currentaccount
surpluswasdrasticallyaffectedasitdroppedfromUS $2.3 billionin2009 to justUS $ 825
millionin2009.Notonlythat but the suppliesof thiscrucial exportcomponentisdwindling.
Givenalsothat the governmentishavinginvestmentsinthisfieldsuchasthe deal with
Occidental todevelopthe capacityof the small onshore Awalifieldwouldraise aconcernif
the oil priceswere notable to maintainhighlevelsassuchinvestmentswouldprove
economicallymore costly. OilrepresentsamajorcontributortoBahrain'sGDP accounting
for more than 60% of itsGDP.
Thisalsohas ledto have the governmentnotpumpmoneyintoothersectorsbecause of the
dwindlingsupplyof income. Broughtbythe suddendropinthe current accountsurplusthe
governmenthadtotake a stepandissue some debtinorderto coverits activities. Thishas
broughtoverthe issuance of emergencybudgetsupplementandthe governmentfinanced
itsdeficitwithbonds.Thishasconsistedof TreasurybillsandIslamicSukuk.Althoughthe
global recessionhadmade the country'seconomysluggishone cantouchits affectas the
governmentfaceditsfirstdeficitsince 2002. Thishighlightsanotherissue withthe global
creditmarketsbeinghardertotap and the cost of creditincreasingdue tothe current
economicdownturnsandmaycreate an issue if the governmentwastorequire relyingon
such instrumentsinfuture.
Otherthan oil,aluminumisthe secondmostinfluentialcontributortothe GDP accounting
for almost50% of the non-oil exports.Aluminuminturnhasbeenaffectedbythe rescission
withitspricesdecreasingconsiderablyfromtheirpeaksinthe yearsof 2007-2008 thisis due
to the reductionof global demandonaluminumdue toreducingoutputlevels.Havingthis
as a major componentof the GDP wouldalsomeanthatthe country'sGDP would reactwith
volatilityinrelationstoaluminumprice fluctuations.
The country's stockmarkethas alsofaceda beatingdue tothe global crisiswhere ithasseen
the marketcapitalizationtripfrom10,185 billionDinarsin2007 to just6,131 billionDinarsin
2009. Sucha trendwouldalsoshowthatequitymarketswouldbe hardto tap intofornew
and/oroldissuance suchas IPOsor additional stocks.
The real estate markethas as well facedissueswithreal estatetransactionsreducingbyan
amountof 52% whencomparing2008 to 2009. Thingstonote for thissectoris that the rents
have cooleddownandhave beenreducedwhichare due toa decrease indemandfor
rentalsandan increase inthe supplyof rental space as well asthe off plansalessector
seeingsucha reductionthatthe transactionsinthissectorof the real estate are extremely
few.
The governmentlatelyhastakenmore stepstocalmregularprotestsbyunemployed
Bahraini nationalsprotestingforjobs.Suchmeasureshave includeda'BahrainizationQuota'

10Country Profile of Bahrain |P a g e
for businesses.Thishasmeantformanyto have to employeeBahraini nationalsathigher
cost than whatit wouldtake toemployee anexpatriate. The governmenthasalsosoughtto
encourage firmstohave a minimummonthlywage of BD200 for Bahraini nationals
informallyandvoluntarily.Thismayprove asadditional costforprivate firmsandother
schemeshave includedhavinga1% monthlydeductionfrommonthlypayinthe formof
payroll tax inorder to finance asystemof unemploymentbenefitsandgovernmentfinancial
supportfor the joblessnationals.
Althoughthe countryhousesasmall population(1,039,297 in2007 accordingto government
statistics) populationisacritical issue forBahraingivenitslimitedusable landsandwater.
Thishas leadthe governmenttogoon extensive landreclamationprojectswhichoftenare
expensive andhave abad impacton the ecology.Watertableshave drasticallydropped and
surface waterisscarce givenitsdesertclimate.Bahrainlike manyof itsGCCpartnershas
beenleadtoheavilyrelyondesalinationplants.
The countryhas seenviolentunrestinthe early1990s due to tensionbetweenthe local
Sunni andShia(majorityof the population). Thishaslatelybeenhighlightedbyhavingthe
Shiamembersof the populationbe verycritical towardsthe latestnationalstatistics
reinforcingfearsthatthe governmenthasbeennaturalizingSunni Muslimsinordertoalter
the populationbalance of the Shai.SuchtensionalsohasleftBahraintobe verysensitive to
regional developmentsortoany problemsbetweenthe Shai andSunni Muslims.Thisalso
has inrecentyearsleadto manyboycottsof parliamentelectionsalthoughrecentlyin2006
al-Wefaqoppositiongroupwhichisthe largestlegal oppositiongroupparticipatedinthe
elections.

4.0 Future Prospects
Since the 1970s Bahrainhas constantlybeenseekingtodiversifyitseconomyandnottorely
on oil somuch. Thiscan be notedwithitpouringinvestmentsinaluminumforinstance as
well asothersectorssuch as the aviationsector whichinvestmentsinGulf Air.Notonlythat
it hasalso lookedintothe tourismindustryandthiscan be notedbyits investmentsinthe
BahrainF1 circuit. It hasbeena populardestinationforSaudi touristsgivenitsclose
proximitytoSaudi Arabiaandthe bridge thatlinks bothof them, Alsonotto forgetithas
constantlybeenstrivingtobe a financial centerandhastriedto constantlycapitalize on
IslamicBankingaswell asestablishitself asanoffshore bankingdestination.Alongwiththis
the governmenthassupported the financial sectorpinningbighopesonit.
Withthe decreasinghydrocarbonrescoresthe countrycanbe opento prospectsof
developmentinthe fieldof energy.Italsohasbeenfavoringheavyindustriessuchasoil,
gas, aluminumandshipbuildingwhichhasledtohave suchindustriesbe the cornerstones
of itseconomy. The governmentaswell isplanningonexpandingportandairportcapacities
whichleadtoopportunitiesinthese sectors.
Otherthan that the countryhas beenconstantlybackedbyits GCC partnersand hasat times
receivedgenerousaidsfromthem.If there wouldcome atime forthe GCC countriesto
finallyagree andcreate a one regioncurrencythiscan furtheraddbackingto Bahrain's
economy. Bahrainalsoliesinastrategiclocation witheasyaccessibilitytocountriesin
Europe,NorthAfricaand Asia.
In spite of havingitsotherGCC counterparts face rangingamountof inflationitwasable to
keepthe inflationatalowlevel while notingthatdue tobeinga dollarpeggeditdid not
have control overmonetarypoliciestofightinflation.
All of these factorshave had the governmentfocusonattractinginvestments.Thiswas
achievedbyhavingastrong legal foundation.Withstronglegal frameworksthatinvestors
can relyto protecttheirrightsand safeguardtheirinterests.Alsothe governmenthas
constantlytriedtohave transparencyas anotherencouragingmeasure.
Thishas helpedBahrainearna worldrankof the 13th
place for itseconomyamongthe
"EconomicFreedomIndex 2010". Notonlythat butit is the rankedthe firstamountthe 17
countriesof the Middle East/NorthAfricanregion.All these pointshave shownthe
governmentconstantlyencouragesinvestments.Alsoanotherthingtonote isthatit
comparativelylowtaxeswiththe region.

5.0 Conclusion
AlthoughBahrainisthe smallestcountrybysize ithasproveditself constantlyandhasbeen
strivingtoestablish itspositionasa leader. While one hastorememberthatothercountries
inthe GCC are as well followingsimilarmodelsof diversificationfortheirrespective
economiesone hasnotto forgetthatall the othercountriesearnconsiderablyhigher
amountsintermsof oil revenue.
Such hasit that inspite of all of the short fallsandotherlimitednatural resourcessuchas
landand waterBahrainwas able to achieve a70% growth inGDP for the last decade whichis
highlyremarkable.Alsoitwasable toestablishitself asasynonymousname withthe
financial servicesindustry.
Havingfierce competitionfromitsneighborshasonlyledittotry to tis besthave the legal
systembe at the betterservice endof business.Ithasalsoconstantlykepta watchon
bringingitsbusinessenvironmenttotermswithglobal requirements.Ithastothinkof more
strategicinvestmentsinordertopart of the greatdependence onoil revenues.Developing
thisisa hard taskand if approachedcorrectlycan prove to be veryfruitful.

6.0 References
World DevelopmentIndicators,Accessed27/11/2010, http://data.worldbank.org/indicator
Penn World Tables,Accessed28/11/2010,
http://pwt.econ.upenn.edu/php_site/pwt63/pwt63_form.php
IMFWorld EconomicOutlookDatabase,Accessed27/11/2010,
http://www.imf.org/external/pubs/ft/weo/2010/02/weodata/index.aspx
CentralBankof Bahrain,Accessed27/11/2010, http://www.cbb.gov.bh/home.php
Bahrain Ministry of Finance,Accessed28/12/2010, http://www.mof.gov.bh/
Dornbusch,R, Fischer,S& Startz, R, Macroeconomics,10thedn, McGraw-Hill,Boston
CIA-TheWorld Factbook,Accessed28/11/2010,
https://www.cia.gov/library/publications/the-world-factbook/
EconomistIntelligence Unit, Accessed28/11/2010, http://www.eiu.com
Economy Watch,Accessed01/12/2010, http://www.economywatch.com/

Country profile Bahrain (by Naeem Saba)

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