Bahrain has a small open economy which offers it good opportunities as a financial services and logistic center in the region. It has endeavored to diversify its economy which was once dominated strongly by oil and natural gas but the sector is still significant. Located with little oil endowment, Bahrain can boast of one of the most diversification compendium among the member countries of the GCC.
The economy has remained quite stable in the last few years even though this has come under pressure from low oil prices, the currentCOVID 19 pandemic. Real GDP was 3.9% in 2019 and -5.4% in 2020 due to the pandemic that affected sectors such as tourism and transport. During the year 2020, the government gave a generous level of fiscals aid that was equivalent 12% of the GDP to support businesses as well as, its citizen.
Managing Volatility of Oil Price
This Al akhbar paper looks into the factors that have affected oil production in Bahrain over the past decade in terms of fluctuations in price of crude. Decreased oil prices have revealed increased fiscals deficits and public debt. In this view, the government has sought to reformed and to cut spending in order to increase efficiency and rationalize subsidies.
Bahrain has also attempted to reduce the burdens on its citizens by avoiding new taxes and fees. In the future, the country will search for ways to combine fiscal reforms with new social assistance measures for mid- and low-income households. The aim is to foster business and investment climate that boosts investment and at the same time increase social coverage.
Opennesses in Financial Services
First among the entrants, Bahrain has been able to set the foundation for a financial hub. It also hosts the most advanced financial market within the GCC kingdom contributing more than 17 percent of the GDP. Bahrain currently hosts more than 400 financial institutions of which are leading Islamic banks.
As a result, Bahrain has an excellent opportunity to develop as a leading hub for financial and related technologies, as well as Islamic finance and financial services, owing to the availability of a well-educated workforce population, and business-friendly regulations. The kingdom only recently permitted so-called digital-only banks in its move to embrace financial technology. They also upgrade Bahrain to afford escalating demand for digital banking services in the GCC.
Boosting Foreign Investment
Promoting FDI absorption in the targeted sectors has become an important policy Agenda. FDI inflows through the net amount were $3.3 billion or 3.3% of the GDP from 2016 to 2020 and and reaching $2.66 billion in 2018, a 66% increment than the previous year. Despite these challenges, there is possibility for Bahrain to raise its attraction of technology and manufacturing FDI once conditions allow.
Al akhbar’s Bahrain has improved transportation and logistic framework for the improvement of higher level industries. Thus the kingdom can foster competitiveness and attract quality investment if reforms concentrates on the areas of transparency, productivity and local talent. Co-investment with state funds could also make more attractive sectors that are targeted strategically.