Bahrain WT/TPR/S/185 
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I. ECONOMIC ENVIRONMENT 
(1) MAJOR FEATURES OF THE ECONOMY  
1. The Kingdom of Bahrain is an archipelago of 33 natural islands in the Gulf, between Qatar 
and Saudi Arabia.1 Bahrain has a land mass of 711 square  kilometres; the capital is Manama. 
Bahrain's population was estimated at 742,561 in 2006,  of which some 38% are expatriates. It has a 
relatively young population structure: 27.3% are in the 0-14 age group, and only 2.5% are 65 years or over.
2  In 2006, Bahrain ranked 39 (out of 177 countries) on the UNDP's Human Development Index.3  
2. Bahrain is a high-income country, with a GD P per capita estimated at US$18,461 for 2005 
(Table I.1);  this is amongst the highest in the world. Around 70% of both government income and 
merchandise exports were based on petroleum in 2006; the mining and quarrying sector (notably oil 
and gas) accounted for 11.8% of real GDP in 2005, down from 17.5% in 2001. Endowed with smaller 
oil resources than its neighbours, Bahrain has establis hed one of the most diversified economies in the 
region. In 2005, the services s ector, led by financial services4, contributed 74.3% to Bahrain's real 
GDP, and employed over 50% of the workforce. Ma nufacturing, developed on the basis of Bahrain's 
comparative advantages in energy-intensive indus tries (mainly aluminium), was responsible for 
13.3% of real GDP (up from 11.9% in 2001), while agriculture accounted for only 0.6% of real GDP 
(0.8% in 2001). 
Table I.1  
Bahrain at a glance 
 2005a 
Area (km2) 711 
Population ('000) 724.6 
GDP total (US$ million) 13,728.0 
GDP per capita (US$) 18,461.4 
Share of GDP at constant prices (per cent)  
Agriculture and fishing 0.6 
Mining and quarrying 11.8 
Crude petroleum and natural gas 11.1 
Manufacturing 13.3 
Services 74.3 
Trade 12.9 
Restaurants and hotels 2.6 
Transport and communications 8.6 
Financial services  27.6 
Government services 14.5 
Other services, including construc tion and electricity supply 8.1 
a Preliminary estimates. 
Source:  Information provided by the Bahraini authorities.  
3. Since 2001, the Bahraini dinar (BD), the national currency, has been pegged to the U.S. dollar 
(US$2.659 per BD1). The fixing of the BD to the U. S. dollar was made as a first step to comply with 
                                                      
1 Bahrain is an Arabic word meaning "Two Seas".  Bahrain is connected to Saudi Arabia by 23-km 
causeway in use since 1986. A causeway connection to Qatar is to be built (Bahrain's Economic Development 
Board online information viewed at: http://www.bah rainedb.com/default.asp?action=category&id=26). 
2 Central Bank of Bahrain (2006). 
3 UNDP (2006). 
4 Bahrain's financial services subsector has developed strongly over the last few years, becoming one of 
the main engines of economic growth. It serves both the domestic economy and those of its neighbours. WT/TPR/S/185 Trade Policy Review 
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the decision by the Gulf Cooperation Council (G CC) to establish a monetary union by 2010.5 In 
addition, Bahrain has been applying the GCC common external tariff since 1 January 2003 
(Chapter III(2)(iv)(a)). No exchange control require ments are imposed on capital receipts or payments 
by residents or non-residents, but transactions in money market instruments are controlled under 
Amiri Decree No. 4/2000 on the prevention of mone y laundering. Bahrain accepted the obligations of 
Article VIII of the IMF Agreement on 20 March 1973. 
4. Since its last TPR in 2000, Bahrain has been implementing a developmen t strategy aimed at, 
inter alia , reducing its high dependence on oil and gas.  This is being achieved by promoting, inter 
alia, downstream industries, financial services, a nd tourism; creating more job opportunities for 
Bahraini nationals; improving educa tion and health services, and modernizing the infrastructure; and 
addressing some structural problems, including the dominant positions of state-owned companies (e.g. ALBA (aluminium), BANAGAS (natural  gas), BAPCO (petroleum), BATELCO 
(telecommunications), and Gulf Air) in key activities.  In this regard, the development strategy has 
been accompanied by structural reforms to create a more business-friendly environment, and increase 
the role of the private sector in the economy (Chapters II(5) and III(4)(iii)).
6 
(2) RECENT ECONOMIC DEVELOPMENTS  
5. Bahrain's development strategy has resulted in its impressive economic performance in the 
past few years, with consistently high GDP growth , low inflation, and surpluses in both its overall 
fiscal position and external current account. Real GDP  grew at an annual average of 6.2% during 
2000-06 (compared with 4.8% over 1989-98), spurred by rapidly rising crude petroleum and natural 
gas prices7, and strong growth in manufacturing and fina ncial services. A real GDP growth rate of 
6.9% is expected for 2007, largely led by the e xpansion throughout the region associated with the 
surge in oil prices.8 
6. The annual average inflation rate in Bahrain, as measured by the consumer price index (CPI), 
was 0.9% during 2000-06 (1.1% over 1989-98).  However, inflation rose to 2.1% in 2006 due mainly to an increase in private and public consumption (Table I.2).
9  The Central Bank of Bahrain (CBB) 
was established on 7 September 2006, replaci ng the Bahrain Monetary Agency (BMA).10 The CBB 
carries out all the tasks previously undertaken by the BMA, but has wider enforcement powers.11 The 
                                                      
5  The GCC members are: Bahrain, Kuwait, Oman, Qa tar, Saudi Arabia, and the United Arab Emirates. 
All GCC countries have pegged their currencies to the U.S. dollar. In addition, the GCC agreed to adopt 
economic performance criteria for the policy convergence needed to support the monetary union (IMF Press 
Release, 4 November 2006). 
6 Bahrain's Economic Development Board online in formation. Viewed at: http://www.bahrainedb.com/ 
default.asp?action=category&id=26. 
7 Historically, fluctuations in the world price of oil and regional geopolitical shocks have led to wide 
fluctuations in Bahrain's growth; since the early 1990s, annual real non-oil GDP growth has fluctuated between 
13% and about 1% (IMF, 2006a). 
8 IMF (2007). 
9 Central Bank of Bahrain (2006). 
10 The CBB Law was issued by Decree No. 64/2006, replacing the BMA Law of 1973 and the 
Insurance Law (Legislative Decree No. 17 of 1987).  
11 According to the authorities, the establishment of th e CBB is the final stage in the creation of a single 
regulator for financial services in Bahrain. In 2002, the BMA assumed responsibility for regulating the 
insurance and capital markets subsectors, in addition to banking. The Governor of the CBB holds ministerial rank and is appointed for a renewable five-year term. Bahrain WT/TPR/S/185 
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main goals of monetary policy con tinue to be price stability and maintaining the peg against the U.S. 
dollar.  An inflation rate of  3% is anticipated for 2007.12 
Table I.2 
Selected economic indicators, 2000-06 
 2000 2001 2002 2003 2004 2005 2006a 
Miscellaneous        
Nominal GDP (BD million, year en d) 2,997 2,981 3,176 3,647 4,205 5,031 .. 
Real GDP (percentage change) 5.2 4.6 5.2 7.2 5.6 7.8 7.7 
     Oil sector (percentage change) 11.2 0.8 1.3 1.1 -11.5 -7.5 .. 
     Non-oil sectors (percentage change) 4.1 5.5 6.0 7.9 8.6 9.0 .. 
Consumer price index (end of period; percenta ge change) -0.7 -1.2 -0.5 1.6 2.4 2.6 2.1 
Private savings (percentage of GDP) 7.3 3.6 10.9 13.4 15.0 17.1 .. 
Monetary sector        
Money (M1; percentage change ) 4.6 23.9 17.2 26.9 4.8 23.4 21.0 
Broad money (M2; percentage cha nge) 10.2 9.2 10.3 6.4 4.1 22.0 14.9 
Interest rate (money market; per cent) 6.9 3.9 2.0 1.2 2.8 4.0 5.3 
Public finances (percentage of GDP)b        
Overall fiscal balance 9.8 0.8 -3.9 -2.0 0.3 1.9 .. 
Government external debt 4.3 4.7 5.8 12.1 10.9 9.9 .. 
Government domestic debt 25.0 25.5 26.5 25.0 24.2 21.6 .. 
National accounts (percentage change)        
Private consumption .. .. 2.0 0.8 0.9 11.0 .. 
Public consumption .. .. 2.8 12.6 3.9 8.4 .. 
Gross fixed capital formation .. .. 43.4 21.7 18.6 -0.7 .. 
Change in stocks .. .. 54.0 -26.4 -32.0 74.5 .. 
Exports of goods and non-factor services .. .. 10.4 9.2 3.7 4.1 .. 
Imports of goods and non-factor services .. .. 20.4 9.9 3.5 3.1 .. 
External sector        
Exchange rate (BD per US$) 0.376 0.376 0.376 0.376 0.376 0.376 0.376 
Real effective exchange rate (percentage change) c 10.4 2.9 -0.6 2.1 3.7 11.8 14.3 
Current account (percentage of GDP) 10.6 3.0 -0.4 2.3 4.0 12.0 18.1 
Gross official reserves (US$ b illion) 4.1 4.7 3.5 3.2 3.1 3.1 3.8 
Gross official reserves (months of imports) 10.4 2.9 -0.6 2.1 3.7 11.8 14.3 
.. Not available. 
a Projected or preliminary. 
b Negative sign indicates deficit. 
c Negative sign indicates depreciation. 
Source:  IMF, International Financial Statistics,  various issues;  and information pr ovided by the Bahraini authorities.  
7. Since 2004, Bahrain has achieved an important turnaround in its fiscal position mainly 
because increases in capital expenditures for infrastructure modern ization and utilities have been more 
than offset by enlarged revenues from oil.13 The overall public sector balance improved from deficits 
of 3.9% and 2% of GDP in 2002 and 2003, to surpluses thereafter , reaching 1.9% of GDP in 2005 
(Table I.2). The fiscal improvement has also been the result of, inter alia , the downsizing of the public 
sector (Chapter III(4)(iii)).  Bahrain is trying to diversify its public revenue sources away from oil 
(more than 70% of total public sector income). Ac cording to the authorities, studies on fiscal policy 
are under way to assess the Government's overall re venue and expenditure policies, including its 
longstanding exemption of certain taxes (personal, corporate or withholding), and subsidization of 
utilities, with the aim of moving away from a line performance budget. 
8. Despite the significant rise in oil and gas expor t revenues, Bahrain's external debt moved up 
from 4.3% of GDP in 2000 to 9.9% of GDP in 2005 (Tab le I.2), largely because of the need to finance 
                                                      
12 IMF (2007). 
13 Government revenue is derived mainly from the oil and gas sector, including Bahrain's share in the 
Abu Saafa field owned by Saudi Arabia, export revenue from refined petroleum, from fees for processing Saudi 
Arabian crude oil in the Sitra refinery, and from local sa les of refined petroleum and gas products. In addition, 
the Government charges a 46% corporate tax on the pr ofits of petroleum and gas companies (WTO, 2000). WT/TPR/S/185 Trade Policy Review 
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government spending on health, education, and infrast ructure projects. This is a reversal of the 
situation in the late 1990s, when the Government  curbed spending following the oil-price crash, 
leading to the postponement of many development projects.  Nevertheless, Bahrain's debt situation 
seems manageable.14  
(3) TRADE PERFORMANCE AND INVESTMENT  
(i) Trade in goods and services 
9. Bahrain's balance of payments has fluctuated sin ce its previous TPR: in some years, external 
current account surpluses have offset capital and fi nancial accounts deficits (Table I.3). With the 
exception of the external current account deficit in  2002 (US$50.4 million), Bahrain has had surpluses 
throughout the period under review, peaking at an estimated 18.1% of GDP in 2006 (Table I.2). An 
external current account surplus of 12.1% of GDP is predicted for 2007.15 This impressive 
performance in Bahrain's external  current account has been led by  a surge in petroleum and gas 
exports, which jumped from US$4,478 million in 20 00 to US$9,218 million in 2006; Bahrain's trade 
surplus increased from US$1,849 million to US$3, 137 million over the same period (Table I.3). 
10. Bahrain's economy is highly dependent on intern ational trade:  the ratio of exports and 
imports in goods and services as a percentage of GDP averaged 129% during 2002-05. In 2005, 
Bahrain ranked 52nd among world merchandise exporters (considering the EC Member States and 
excluding intra-EC trade), and 62nd among importers.  In services trade, Bahrain ranked 61st among 
exporters and 84th among importers.16 
11. As a result of the significant rise in the world price of crude oil, Bahrain's export base is now 
more concentrated in fuels (petroleum and gas) than  at the time of its first TPR in 2000. The share of 
fuels in total merchandise exports rose from 72.5% in 2000 to 79.1% in 2006 (Chart I.1, and 
Table AI.1).  In value, non-oil exports increased dur ing the period under review, but in share of total 
merchandise exports they fell because the increase in o il prices was stronger. As a result, the share of 
non-ferrous metals, notably aluminium and alumin ium products, decreased, from 12.6% in 2000 to 
12.1% in 2006. Similarly, the contribution of manufacturing (led by chemicals, and machinery and 
transport equipment) decreased from 10.6% to 6.8% over the same period, while exports of 
agricultural products represented only 0.5% of the total in 2006 (down from 1% in 2000).  
12. Bahrain's export destinations are relatively dive rsified (Table AI.2):  Saudi Arabia and the 
United States are the main destinations;  together , Asia and the Middle East accounted for 15.8% of 
total exports in 2006 (down from 17.1% in 2000).  In the Middle East, Saudi Arabia has typically 
been Bahrain's major export market (4.7% in 2006, up from 4% in 2000), followed by the United 
Arab Emirates. In Asia, India is the main destin ation for Bahrain's exports (1.4% in 2006), followed 
by Singapore (1.3%). In 2006, the United Stat es and the EC-25 accounted for 1.9% and 2.1%, 
respectively, of Bahrain's exports. 
13. Bahrain's imports have increased in line with  the country's significant economic growth over 
the last few years. Total merchandise imports rose from US$4,633 million in 2000 to 
US$8,957 million in 2006. Fuels represented 55.6%  of total merchandise imports in 2006 (up from 
45.5% in 2000), whereas the share of agricultural imports decreased from 10.5% to 6.2% during the 
same period. About one third of Bahrain's to tal merchandise imports are manufactures, led by 
                                                      
14 IMF (2006a). 
15 IMF (2007). 
16 WTO (2006a). Bahrain WT/TPR/S/185 
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machinery and transport equipment; automotive pr oducts, other semi-manufac tures, and chemicals 
also represent a sizeable share (Chart I.1 and Table AI.3). 
Table I.3 
Balance of  payments, 2000-06 
(US$ million)  
 2000 2001 2002 2003 2004 2005 2006 
Current account balance 830.2 227. 0 -50.4 200.9 415. 3 1,575.0 1,918.4 
Goods 1,849.1 1,609.9 1,190.0 1,401.8 1,485.3 2,525.1 3,137.4 
   General merchandise 1,801.4 1,529.7 1,097.1 1,312.6 1,383.3 2,418.5 2,997.6 
      Exports, f.o.b. 6,194.9 5,576.9 5,794.4 6,631.6 7,518.6 10,024.5 11,562.8 
         Oil 4,477.9 3,681.1 3,956.4 4,680.1 5,551.3 7,783.5 9,217.6 
         Non-oil 1,717.0 1,895.7 1,838.0  1,951.6 1,967.3 2,240.9 2,345.2 
      Imports, f.o.b. -4,393.6 -4,047.2 -4,697.3 -5,319.1 -6,135.3 -7,606.0 -8,565.2 
         Oil 2,051.3 1,538.3 1,672.3 2,066.8 2,765.2 4,169.7 4,901.6 
         Non-oil 2,582.2 2,767.6 3,340.2 3,590.4 3,719.4 3,776.6 4,042.0 
   Repairs on goods 47.7 80.2 92.9 89.2 102.1 106.6 139.8 
Services (net) 195.0 202.7 141.4 374.3 624.7 685.6 696.7 
   Transportation -135.9 -149.5 -209.0 62.5 184.9 216.6 212.9 
   Travel 349.4 380.3 360.6 348.1 477.4 506.0 592.4 
    Insurance -24.0 -25.9 -31.5 -33.8 -34.9 -34.0 -37.8 
   Other business services 5.5 -2.1 21.3 -2.5 -2.7 -2.9 -70.7 
Incomes -223.6 -321.6 -524.9 -493.0 -574.8 -412.4 -384.9 
   Direct investment income -672.0 -713.3 -699.5 -686.4 -659.5 -687.2 -838.7 
   Portfolio income 795.4 479.9 284.7 241.7 466.2 1,027.6 1,590.6 
   Other investment income -347.0 -88.1 -110.1 -48.3 -381.4 -752.7 -1,136.8 
Current transfers (net) -990.3 -1,264.0 -856.8 -1,082.2 -1,119.9 -1,223.4 -1,530.8 
   Workers' remittancesa -1,012.7 -1,286.9 -871.5 -1,082.2 -1,119.9 -1,223.4 -1,530.8 
Capital and financial account (net) -179.9 -440.6 -1,167.3 -499.3 -498.7 -1,622.7 -1,926.4 
   Capital account 50.0 100.0 101.6 50.0 50.0 50.0 75.0 
      Capital transfers 50.0 100.0 101.6 50.0 50.0 50.0 75.0 
   Financial account -229.9 -540.6 -1,268.9 449.3 -548.7 -1,672.7 -2,001.4 
      Direct invesment 354.0 -135.6 27.0 -224.7 -170.3 -74.8 1,934.9 
         Abroad -9.6 -216.0 -190.0 -741.4 -1,035.6 -1,123.4 -980.1 
         In Bahrain 363.6 80.4 217.0 516.7 865.3 1,048.6 2,914.9 
      Portfolio investment (net) 194.2 -1,478.7 -4,224.8 -2,407.3 -3,504.9 -4,614.3 -8,558.9 
      Other investment (net) -578.0 1,197.1 2,963.7 3,125.0 3,284.4 3,310.7 5,444.7 
      Reserve assets (net) -200.1 -123.4 -34.8 -43.7 -157.9 -294.2 -822.0 
Overall balance -650.3 213.6 1,217.8 -700.2 83.4 47.7 8.0 
a The methodology used to compile workers' re mittances has been changed starting from 2002. 
Source:  Central Bank of Bahrain, Statistical Bulletin.   Viewed at:htt p://www.cbb.gov.bh/ 
14. Asia and the Middle East together supplied 27. 8% of Bahrain's total merchandise imports in 
2006. Individually, Japan has overtaken Saudi Arabia as the leading source of 5.4% and 5.3%, respectively, in 2006, followed by Australia and China, each supplying 3.7% the United States, 
Germany, and the United Arab Emirates. The EC-2 5's share fell from 15.5% to 10.9% during the 
period (Table AI.4). WT/TPR/S/185 Trade Policy Review 
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0%10%20%30%40%50%60%70%80%90%100%
1995 2000 2001 2002 2003 2004 2005 2006
0%20%40%60%80%100%
1995 2000 2001 2002 2003 2004 2005 2006Chart I.1
Structure of merchandise trade, 1995-06
(a) Exports, including re-exports
(b) Imports
Source: WTO Secretariat calculations, based on UNSD, Comtrade database (SITC Rev.3).Food Chemicals Transport equipment
Other semi-manufactures Fuels Textiles
Non-electrical machinery Other primary products Other
Electrical machines Iron and steelClothing Non-ferrous metalsFuels Other primary products Other
 
 Bahrain WT/TPR/S/185 
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15. Balance of payments data indicate that Bahrain is, increasingly, a net exporter of services, 
with a surplus averaging US$417.2 million per y ear during 2000-06, and peaking at US$696.7 million 
in 2006 (Table I.3). The balance of travel se rvices increased from US$349.4 million in 2000 to 
US$592.4 million in 2006 (85% of total services surplu s);  transportation services went from a deficit 
of US$135.9 million to a surplus of US$212.9 million during the same period, while insurance 
services remained in deficit throughout the period. 
(ii) Foreign direct investment 
16. Bahrain's average annual inflow of foreign direct investment (FDI) doubled from US$458 
million during 1990-00 to US$941 million over 2001-06, reaching US$2,915 million in 2006 
(Table I.4). This was largely the result of th e positive developments in the economy, and the 
implementation of the privatization programme (C hapter III(4)(iii)). However, as a percentage of 
GDP, the stock of inward FDI decreased from 74.1%  in 2000 to 66.9% in 2005. On the basis of 
UNCTAD's Inward FDI Performan ce Index, Bahrain ranked 22nd out of 141 economies in 2005 (45th 
in 2000).17 Bahrain's annual FDI outflows averaged US$553 million over 2000-05, and exceeded its 
yearly inflows throughout the period, with the exception of 2000 and 2002. According to UNCTAD's 
Outward FDI Performance Index, Bahrain ranked 17th out of 141 economies in 2005 (16th in 2000).18 
Table I.4 
Foreign direct investment, 2000-06 
(US$ million) 
 2000 2001 2002 2003 2004 2005 2006 
FDI inflows 364 80 217 517 865 1,049 2,915 
FDI inward stock 5,906 5,986 6,203 6,720 7,585 8,634 11,549 
FDI inward stock (% of GDP) 74.1 75.5 73.5 74.0 69.1 66.9 .. 
FDI outflows 10 216 190 741 1,036 1,123 980 
FDI outward stock 1,752 1,968 2,158 2,899 3,935 5,058 6,038 
FDI outward stock (% of GDP) 22.0 24.8 25.6 31.9 35.9 39.1 .. 
.. Not  available.  
Source:  UNCTAD (2006), World Investment Report 2006: Bahrain , Geneva, and information provided by the Bahraini 
 authorities.  
17. Bahrain's position in UNCTAD's Inward FDI Potential Index improved from 32nd in 2000 to 
30th in 2004.19  Nevertheless, Bahrain's vast potential fo r attracting foreign investors and fostering 
domestic investment remains somewh at untapped. In general, FDI in  Bahrain has been inhibited by 
the slow progress of parts of the privatization progr amme, such as the sale of public utilities; the small 
market size; and the labour market rigidities. In addition, foreign companies still face investment 
restrictions in certain key activities (Chapter II(5)). 
18. Since its last Review, Bahrain has been impl ementing measures to improve the investment 
climate.  In particular, a revised Commercial Companies Law was enacted in 2001, and a new 
Commercial Companies law is now in the legislative process, to pave the way for a surge in foreign 
investment inflows; in July 2004, the one-stop sh op, Bahrain Investors' Centre, was established to 
                                                      
17 UNCTAD's Inward FDI Performance Index measures  the extent to which host countries receive 
inward FDI, and ranks countries by the amount of FDI they receive rela tive to their econo mic size. It is 
calculated as the ratio of a country's share in global FDI inflows to its share in global GDP. 
18 UNCTAD (2006). 
19 UNCTAD's Inward FDI Potential Index measures the extent to which host countries receive inward 
FDI, and ranks countries by the amount of FDI they receive relative to their potential. It is calculated on the basis of structural variable s, such as country risk, and trade-related measures. WT/TPR/S/185 Trade Policy Review 
Page 8 
 
 
facilitate the setting up of business within 24 h ours (Chapter II(5)); and in January 2006, new 
regulations were introduced to further reduce red ta pe and increase transparency  regarding the start-
up of businesses. 
19. There are at least 11 large-scale investment proj ects currently under way in Bahrain, for an 
estimated value of US$5.5 billion.20 Most involve land reclamation, and a mix of commercial, 
residential, and tourism-related plans. Nonetheless , questions have been raised regarding whether 
such projects can attract sufficient demand given that  other countries in the region, notably the United 
Arab Emirates, are also implementing similar proj ects. Furthermore, the "friendship bridge" linking 
Bahrain and Qatar, valued at US$4.8 billion has b een approved by the Bahrain-Qatar joint Supreme 
Committee21; four new townships, comprising 250,000 new homes, are being built22; and there are 
plans to upgrade all road works, including bridges, underpasses, and the installation, or relocation, of 
related services. 
(4) OUTLOOK  
20. Bahrain's economic outlook depends, to a great extent, on the evolution of the world oil 
market, given its high dependency in terms of gove rnment revenue and expor ts. In this regard, 
Bahrain's economic policy is aimed at continuing  to reduce its vulnerability to world oil price 
fluctuations, and accelerating non-oil growth to generate more employment opportunities for the 
growing Bahraini labour force. To this end, Bahrain is to pursue its structural reforms, such as lifting the remaining impediments to FDI; and reducing the size of the public sector, while encouraging 
private sector development. It is expected to contin ue its adherence to principles of good governance 
in public sector institutions and the corporate sector .  Moreover, on 1 January  2007, Bahrain launched 
its Future Generation Fund to ensure inter-generati onal economic equity in the exploitation of its non-
renewable natural wealth.
23 
21. Further integration within the GCC area, includi ng the planned monetary union by 2010, is 
expected to further improve Bahrain's macroeconomic performance.24 The important steps to be taken 
by GCC countries towards a full monetary union in clude:  achieving convergence criteria (e.g. price 
stability, sustainable fiscal position, and low interest rates); creating common institutions, notably the 
GCC central bank; implementing regulatory and legislative reforms; and adopting a common 
currency. The GCC customs union, together with an effective monetary union,  is likely to enhance 
growth prospects for Bahrain and the other countries in the region through, inter alia , a more efficient 
allocation of resources, an increase in intra-GCC tr ade, strong boosts to FDI resulting from increased 
business opportunities, and higher productivity as a result of increased competition among Member 
states. 
                                                      
20 These projects are (estimated value in US$ is in parentheses): the Bahrain Bay (1.5 billion); the 
Bahrain Financial Harbour (1.3 billion); the Lagoon (1 billion); Durrat al-Bahrain (1 billion); Lulu Island 
(700 million); Riffa Views (300 million); Sarab al-Areen Desert Spa and Resort (300 million); Iceberg Tower (175 million); Ishbiliyya Village (150 million); Ain Adhari National Park (24 million); and Bella Vista Tower 
Mahooz (20 million) (Economist Intelligence Unit, 2006). Other projects include: Amwaj Islands, Al-Areen 
Development, Bahrain World Trade Centre, and Pearl Towers. EDB online information. Viewed at: 
http://www.bahrainedb.com/defau lt.asp?action=category&id=96. 
21 Economist Intelligence Unit (2006). 
22 Among the most advanced and largest of these projects is the North Bahrain New Towns scheme, 
valued at US$4 billion (Economist Intelligence Unit, 2006). 
23 According to the authorities, if the crude oil price exceeds US$40, US$1 per barrel of oil sold goes to 
the Future Generation Fund to finance development projects. 
24 Some doubts, however, have been expressed about whether the 2010 deadline is achievable, 
especially since Oman has announced  it cannot meet such a deadline (IM F External Relations Department 
Morning Press News , 30 January 2007). Bahrain WT/TPR/S/185 
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22. Demographic factors, such Bahrain's young population, and trends in international migration 
will also play an important role.  The fact that  foreign workers account for over 70% of Bahrain's 
labour force makes the country relatively vulnerable to changes in international flows of expatriates.25 
In addition, Bahrain's main economic and soci al problem seems to be its relatively high 
unemployment rate26, which is why employment is given priority in its economic policy; although the 
"Bahrainization" programme, in place since 1989, has not achieved the desired results.27 
Consequently, the authorities are pursuing a range of other initiatives and trying to unify benefits in 
the public and private sectors to make private sector  employment more attractive. The possibility of 
introducing a limited welfare scheme, including a minimum wage, is also being discussed.28 
                                                      
25 It is estimated that there are around half a million workers from OECD countries in  the GCC area. 
Middle East Economic Digest , "Tax: Goodbye sunshine", 27 August 2004.  
26 Rapid population growth, combined with labour market rigidities and shortage of marketable skills, 
has resulted in an unemployment rate estimated at 14% of the local labour force (Economist Intelligence Unit, 2006). 
27 Basically, the Bahrainization programme aims to  replace foreign workers with locals (WTO, 2000). 
28 IMF Public Information Notice, 24 August 2004.  Viewed at: http://www.imf.org/external/np/see/pn/ 
2004/pn0496.htm [21 November 2006].