Bahrain’s economy enjoyed a standout year in 2022. Higher oil prices and strong activity in key sectors, including tourism and construction, drove real gross domestic product (GDP) growth above 6%, according to Fitch Ratings, well above forecasts by the International Monetary Fund (see chart). For many private and public sector leaders, this outcome marks a watershed moment in the country’s recovery from the Covid-19 pandemic. But as the world, and Bahrain, moves on from the economic lows of recent years, a new set of challenges and opportunities are facing the government in Manama.
For one, the urgency of transitioning the economy away from oil is building, as Bahrain’s public finances deteriorate and a greener global future beckons. Though hydrocarbons account for only 18% of GDP, the sector generates about 75% of government revenues. The problem facing Bahrain’s government is that its proven oil reserves are low and the cost of extraction is high. And although the country has taken significant strides to diversify its economy over the past two decades, there is more work to be done.
