Bahrain Economic Forecast

 The Kingdom of Bahrain was the first Gulf State to discover crude oil. However, its oil reserves are not as abundant as its neighbours such as Saudi Arabia and Iran. Forecasts expect Bahrain’s oil reserves will run dry within the next 10-15 years. As a result, the Bahraini government has actively sought to diversify and privatise its economy in order to reduce its reliance on oil.

 The Kingdom of Bahrain was the first Gulf State to discover crude oil. However, its oil reserves are not as abundant as its neighbours such as Saudi Arabia and Iran. Forecasts expect Bahrain’s oil reserves will run dry within the next 10-15 years. As a result, the Bahraini government has actively sought to diversify and privatise its economy in order to reduce its reliance on oil.

Today, Bahrain possesses the most diverse economy in the Gulf States and includes financial, aluminium and tourism sectors which accounts for 75 percent of Bahrain’s GDP.

Nevertheless, Bahrain’s oil industry remains a critical element of their economy – with petroleum production and refining accounting for over 60 percent of Bahrain’s exports and over 70 percent of the government’s earnings.

It therefore comes as no surprise that Bahrain remains committed to its pursuit for diversification. Bahrain’s emergence as a major financial centre, where international financial institutions can operate with substantial freedom was a defining milestone for the country.

However, Bahrain’s financial sector may soon face competition from other gulf states seeking to emulate Bahrain’s diversification model. Bahrain’s continued and robust growth will depend on its ability to acquire new natural gas supplies as feedstock to support its growing petrochemical and aluminium industries.

 

Unfortunately, the current turmoil in Bahrain may affect forecasts made prior to the present situation arising.

 

Bahrain’s GDP Forecast

In 2010, Bahrain’s GDP grew 3.955 percent – with a GDP (PPP) of US$29.663 billion.

Over the next 5 years, Bahrain’s GDP growth is expected to rise steadily from 4.5 percent in 2011 to 5.234 percent in 2015. This would see Bahrain’s GDP (PPP) grow annually from its current value to US$31.401 billion in 2011 and US$40.542 billion in 2015.

In 2010 Bahrain’s GDP (PPP) grew however it’s GDP Per Capita (PPP) fell by 1.49 percent from US$27,214.13 in 2009 to US$26,807.51. This discrepancy is considered an abnormality. GDP Per Capita (PPP) is expected to rise by 3.79 percent in 2011 and reach US$27,822.31 – eventually growing to US$33,185.21 by 2015.

One key driver to Bahrain’s economic growth in the future is the transformation into a high-tech service industry, particularly in the finance sector.

The private sector will also play an important role in the future of Bahrain’s economic growth. At present, the private sector accounts for more than half of Bahrain’s GDP, although its involvement in the economy can be, to some extent, attributed to the state’s connections to large public corporations such as Bapco (oil, 37 percent stake in shares), Alba (aluminium, 77 percent), Gulf Air(national carrier, 50 percent) – in addition to 50 percent stake in the National Bank of Bahrain.

However the Bahraini government has stated its intentions to sell parts of their shares in these companies while implementing new reforms within the public sector to convert the government’s role as an operator to that of a regulator.

Bahrain’s Unemployment Forecast

Bahrain’s population in 2010 was 1.234 million, experiencing a growth rate of 1.292 percent from the previous year. Bahrain’s population is made up of 25.9 percent aged 14 years and below, 70.2 percent aged 15 to 64 years and 3.9 aged 65 years and older – 54 percent being non-nationals.

Bahrain possesses a relatively small but capable labour force with 44 percent of the 611,000 strong labour force being non-nationals. Due to Bahrain’s rapid expansion and diversification, the labour force grew significantly between 2007 and 2008 increasing by 24.15 percent and 27.46 percent respectively. Population growth in Bahrain has since levelled off to a rate of 4.85 percent in 2009 and 4.62 percent in 2010. An advanced education system and high literacy rates (83.6percent of the population as of 2001) has also produced a highly educated and skilled workforce in the country.

According most recent published data by the IMF, Bahrain’s unemployment rate in 2005 was 15 percent of its labour force.

However a 2010 report by the Gulf News quoted Bahrain’s labour minister, Majeed Al Alawi, stating Bahrain’s unemployment rate had fallen to 3.7 percent in February 2010.

According to Majeed Al Alawi, the central cause for the decrease in unemployment in Bahrain was the introduction of the Unemployment Insurance System (UIS) that allowed unemployed citizens to register with the ministry and receive financial assistance for six months. During this period, the government assisted citizens in their job search while providing job-related training.

In addition to the UIS, Bahrain’s decision to diversify its economy has also created new job opportunities for Bahrainis. Yet, while unemployment levels have dropped, one of the main reasons for the current turmoil in Bahrain stems from the Shiite Muslim majority who believe that they face discrimination in finding jobs than the ruling Sunni minority.

Bahrain’s Inflation Rate & Current Account Balance Forecast

The Inflation rate (average consumer price change) in Bahrain was 2.643 percent in 2010, down from 2.79 percent in 2009, and is expected to plateau at 2.5 percent from 2011 to 2015.

Bahrain’s Current Account Balance in 2010 was twice that of the previous year, rising from US$0.56 billion in 2009 to US$1.12 billion – and it’s expected to rise steadily over the next five years from US$1.343 billion in 2011 to around US$2.433 billion in 2015.