Bahrain - Overview of economy

Bahrain was the first country on the Arabian side of the Persian Gulf to discover oil in 1932. Oil wealth dramatically improved education and health care, but the country's oil reserves are relatively limited in comparison to most of its neighbors. Bahrain has therefore developed a more diversified economy than most of the Gulf States.

During the 1960s and 1970s, Bahrain emerged as the principal financial and communications center of the Gulf region. Oil and gas, however, still play a dominant role in the country's economy, providing about half of the government's income and accounting for two-thirds of exports. An undersea pipeline pumps oil from Saudi Arabia to Bahrain's large refinery, Sitrah. An estimated 70 percent of Bahrain's oil revenues come from the sale of products refined from crude oil extracted from an oilfield that is shared with Saudi Arabia, but from which Bahrain takes all the income. In effect, therefore, Saudi Arabia supplies Bahrain with financial aid. In addition, it enjoys grants from Abu Dhabi and Kuwait, which contribute considerably to the government budget. Most of the budget (60 percent) is used to pay salaries to Bahrainis and foreigners working in the public sector .

Until very recently, wholly or partially government-owned enterprises dominated much of the Bahrainieconomy,

but there has been an increase in private sector activity in recent years. This situation stems from the general decline in oil prices during the 1980s, which resulted in decreasing revenues. This financial downturn made an increase in free enterprise and foreign investment necessary in order to maintain the country's high standard of living and to guarantee its economic welfare. Bahrain became a member of the World Trade Organization (WTO) in 1992 and has since overhauled many laws and regulations. Nevertheless, the government has been slow to implement required measures. For example, it has only partially privatized 14 government-owned companies, and only one of these is an important industrial enterprise.