Economy
According to the Index of Economic Freedom of 2020 Bahrain has the 4th freest economy in the Middle East and North African region and is the 63rd freest economy in the world. According to the World Bank Bahrain is recognized as a high-income economy.
The economy of Bahrain is depended heavily upon oil and gas, followed by aluminum production, finance and construction materials. Petroleum is Bahrain most exported product accounting 60% of export receipts, 70% of Government revenues, and 11% of the national GDP.
According to the World Bank the GDP of Bahrain in 2020 was US$34.73 Billion (in current US$ prices) and US$32.768 Billion (in 2015 constant US$ prices) reduced from US$38.47 Billion (in current US$ prices) and US$34.791 Billion (in 2015 constant US$ prices) in 2019 respectively.
Manama is the base of many large financial institutions, which were benefited from the regional boom driven by the demand of oil and gas. The expansion of the banking and financing sector was part of the diversification policy of the Government since Bahrain has only 124.6 million barrels of proven reserves from two fields: the onshore Bahrain field and the offshore Abu Safah field, which is shares with Saudi Arabia.
The average daily production in 2019 was only 42,000 barrels per day although it was increased to 45,000 barrels per day in 2020 and to 55,000 barrels per day in 2021 (at least during the first half of the year) which cover only the internal demand.
Bahrain and Saudi Arabia split annual revenues from the 300,000 barrels per day Abu Safah offshore field in Saudi Arabia as a result of a 1958 political agreement. Saudi Aramco, Saudi Arabia’s state oil company, oversees production at the field and Bahrain refines and markets half of the output from Abu Safah, which is connected to Bahrain’s Sitra refinery via pipeline.
The Natural Gas production of Bahrain was reported at 609,520.000 Cub ft in 2020. This records a decrease from the previous number of 612,232.000 Cub ft for 2019. Responsible for the Gas production is Bahrain National Gas Company (BANAGAS) and Bahrain National Gas Expansion Company (BNGEC).
Both are responsible for the processing of associated gas, where propane, butane and naphtha are extracted from the gas and exported. BANAGAS also processes refinery-off gas from the BAPCO refinery. Part of the residual low-pressure natural gas is used as fuel for BANAGAS and BNGEC’s furnaces and gas turbines, and the rest is supplied some gas customers.
The Gulf Petrochemical Industries Company (GPIC) is a joint venture of the petrochemical industries of Kuwait the Saudi Basic Industries Corporation and the Government of Bahrain. The petrochemical plant of GPIC completed in 1985 and produces ammonia, methanol, and urea for export.
In April 2018, the Bahraini government announced its biggest oil and gas discovery since the 1930s. The extensive reservoir discovered off Bahrain’s west coast is estimated to contain some 80 billion barrels of tight oil resources in shale oil. At the same time, Bahrain also announced the discovery of 10-20 trillion cubic feet in onshore “Pre-Unayzah” deep gas reserves beneath the legacy 2,000 km2 size Khalij al Bahrain field.
The Government announced in September 2021 its intention to drill 900 wells over the next five years at the regular Bahrain field which is located in the middle of the island and south of the island. Although no much progress has been done since then the Government remain on pace to bring online the offshore reserves by around 2023 despite not having moved beyond the test drilling phase.
According to estimates the production of the new oil fields could reach 200,000 b/d though the resources are likely technically challenging to develop. Bahrain has sought a strategic investor for the new project either an international oil company or a services company particularly with expertise in YS shale oil for further exploration and development of the field.
For that purpose, Bahrain contracted with Halliburton to drill two appraisal wells that will enable the Kingdom to evaluate the commercial viability of Bahrain’s new oil fields. Bahrain also signed in 2019 a MoU with Chevron to conduct an assessment of unconventional offshore oil and gas potential in the Gulf of Bahrain.
Bahrain has a recently modernized the Sitra oil refinery with adequate refining capacity. BAPCO (Bahrain Petroleum Company) refinery will have eventually the capacity to refine daily 360,000-380,000 barrels per day from 267,000 barrels per day today. Over 85% of Bapco’s refined products and crude oil are exported to countries across Africa, the Middle East, the Far East and Southeast Asia.
The Bapco Modernization Programme (BMP) which is currently underway, is one of the Kingdom’s priority development projects that will inject newer product streams, bring in additional processes and skilled job opportunities, and bolster the company’s credentials as a company dedicated to sustainability.
In August 2021 BAPCO awarded to the US Company Chevron -Grace joint venture a US$250 Million advanced refining technology contract in connection toi the modernization project. In December 2019 Bahrain signed an Exploration and Production Sharing Agreement with the Italian company Eni to develop Northern Block 1 separate offshore conventional resources located in Bahrain’s northern territorial waters.
BAPCO also announced the creation of the Bahrain gasoline Blending joint venture with a UK-based Greenenergy to establish a regional gasoline blending hub.
Furthermore, Teekay LNG Partners, Gulf Investment Corporation and Samsung C&T has commenced the construction of Bahrain’s first LNG import terminal. The terminal will be located offshore approximately four kilometers east of the onshore receiving facility at the Khalifa Bin Salman port.
The project is being developed to supplement local gas production in Bahrain and ensure capacity to meet peak seasonal gas demand and industrial growth. The project will have a capacity of 800 million standard cubic feet per day and an expected requirement of US$900 Million.
Despite the oil and gas industry the economy of Bahrain relies also on the production of aluminum and iron ore. Aluminum Bahrain was established in 1968 and its operation started in 1971. The factory can produce 1.5 million metric tones annually. The factory produces 10kg and 22.5kg Standard Ingots, Rolling Ignots, Properzi Bars, Extrusion Ingots, LME Sows, T-Ingots, Liquid Metal, Calcined Cole, and Electric Power (3,665 MW)
The company employs 3,130 people, the revenue at 2020 was US$2,823 Million and the net income was US$26 Million. Besides Aluminum Bahrain there are three more factories, the Aluminum Extrusion Company, the Gulf Aluminum Rolling Mill Company, and the Arab Iron and Steel Company’s iron ore pelletizing plant with annual production of 4 million tons.
Furthermore, Bahrain has shipbuilding and repair yards.
The global COVID-19 pandemic affected the economy of Bahrain in 2020 and for this reason the Government tried to help the economy and the society with fiscal support measures in order to overcome the economic contraction. GDP growth is expected to reach 3.3% in 2021 and remain at the same pace during the medium term.
Bahrain entered the COVID-19 pandemic crisis with weak macroeconomical conditions since the fiscal and external deficits deteriorated following the 2014 oil price shock and remained weal notwithstanding progress under the 2018 Fiscal Balance Program whose implementation was stopped due to the pandemic and related oil prices shock.
The Government implemented a pandemic help package of US$11.3 Billion in March 2020 and additional US$1.3 Billion in June 2021. The economic outlook depends on the oil market prospects, the global path of the COVID-19 pandemic and the Government commitment to the reforms plan. The hydrocarbon GDP is estimated to recover reaching almost 1% growth in 2021 and to remain stable in the forecast period with the OPEC+ deal by 2022 the expanding the gas output from new fields.
Non-hydrocarbon GDP is forecast to accelerate to almost 4% in 2021 before bouncing back to an average of 3.5% in 2022-2023. The swift rollout of 5G services and the robust infrastructure in e-commerce and ICT sectors are likely to be important drivers of growth.
The global Pandemic of COVID-19 effected the exports of goods of Bahrain. The country exports petroleum and petroleum products, aluminum, smelting, iron products, non-alloyed, iron ores and concentrates, non-alloyed wire, textiles and gold. The reduction of the exports of goods in 2020 compared to 2019 was -22.7%.
According to UNCTAD statistics the total value of the exports of Bahrain reached US$14 Billion, while the imports of goods reached US$12.68 Billion. The deficit of the merchandise trade balance during 2020 was US1.3 Billion.
According to UNCTAD the exports of Bahrain can be classified in five product groups; Manufactured goods (33% of total exports), Fuels (31% of total exports), Ores and metals (29% of total exports), All food items (5% of total exports) and Other (2% of total exports).
Bahrain imports crude oil, machinery, chemicals, gold, food, and jewellery, from UAE, China, Saudi Arabia, USA, Brazil, Japan and India. The most important trade partners of Bahrain according to the value of the exports of the country are; UAE (US$3.45 Billion), Saudi Arabia (US$2.44 Billion), USA (US$909 Million), Oman (US$562 Million), India (US$507 Million).
Bahrain’s Economic Vision 2030
Bahrain’s Economic Vision 2030, was announced in October 2008 by His Majesty King Hamad bin Isa Al Khalifa, is a comprehensive economic vision for the Kingdom of Bahrain, providing a clear direction for the continued development of the Kingdom’s economy and, at its heart, is a shared goal of building a better life for every Bahraini.
The Vision was launched after four years of elaborate discussions with a group of decision makers in the public and private sectors including Government institutions and concerned entities in addition to several think tanks and international institutions.
The Economic Vision 2030 focuses on crystalizing an integrated social-economic Government vision and focuses on three basic principles which are competitiveness, integrity and sustainability. After the launch of the Vision, the Kingdom of Bahrain began an institutional economic reform program that is in line with the objective of the Economic Vision 2030. The strategy to implement the Vision is continuously revised to adapt to the international changes and the Government’s work program.
The initiative of the King aims to reduce the reliance on petroleum and boost Bahrainis disposable income. With its business and leisure tourism industry, aluminum-processing facilities, shipbuilding and ship repair industry and the promotion of Manama as a center of Islamic banking, Bahrain at the end of the first decade of the 21st century appeared well placed to prosper in a post-petroleum era.
State Budget, Deficit, Debt
According to the Ministry of Finance of Bahrain the State Budget of 2021 is expected to have US$6,398,619,680 Public Revenues of which the net oil and gas revenues expected to reach US$4,036,000,000 and the non-oil revenues and National Bureau for Revenue expected to be US$2,362,619,680.
Regarding the Public Expenditure the Ministry of Finance has planned to spend during 2021 in total US$9,611,079,787.
More specifically the Government of Bahrain has planned to spend during 2021:
- General Public Services Sector: US$547,630,319
- Defence Sector: US$1,391,914,893
- Public Order and Safety Sector: US$1,169,098,404
- Economic Affairs and Infrastructure Sector: US$424,827,127
- Environmental Protection Sector: US$13,742,021
- Housing and Community Amenities Sector: US$37,976,063
- Health Sector: US$769,420,212
- Youth, Culture and Media Sector: US$143,380,319
- Education Sector: US$853,593,085
- Social Protection Sector: US$1,158,388,297
- Reserve Budget: US$256,694,148
- Government Debt Interest: US$1,882,978,723
- Expenditure Related to Corona Virus Covid-19: US$132,978,723
- Operating Costs for Securing Strategic Food Stockpiles: US$6,648,936
- Projects Expenditure: US$797,872,340
According to the estimated revenues and expenditure mentioned above the Primary Deficit without the Government Debt Interests could reach US$1,329,481,383 while the Overall Deficit could reach US$3,212,460,106.
For the fiscal Year 2022 the Ministry of Finance estimates that the public revenues will reach US$6,534,922,872 despite the consequences of the Pandemic. The net oil and gas revenues for 2022 will reach US$4,072,694,148 and the non-oil revenues and National Bureau for Revenue expected to reach US$2,462,228,724.
Regarding the Public Expenditure the Ministry of Finance is planning to spend during 2022 in total US$9,491,114,361.
More specifically the Government of Bahrain is planning to spend during 2022:
- General Public Services Sector: US$549,071,808
- Defence Sector: US$1,391,914,893
- Public Order and Safety Sector: US$1,169,539,893
- Economic Affairs and Infrastructure Sector: US$306,478,723
- Environmental Protection Sector: US$13,861,702
- Housing and Community Amenities Sector: US$37,992,021
- Health Sector: US$792,273,936
- Youth, Culture and Media Sector: US$144,119,680
- Education Sector: US$863,101,063
- Social Protection Sector: US$1,158,388,297
- Reserve Budget: US$253,202,127
- Government Debt Interest: US$2,013,297,872
- Project Expenditure: US$797,872,340
According to the estimated revenues and expenditure mentioned above the Primary Deficit without the Government Debt Interests could reach US$942,893,617, while the Overall Deficit could reach US$2,956,191,489. Regarding Public Debt according to the IMF the Covid-19 period resulted to its increase from 102% of GDP in 2019 to 133% of GDP in 2020.