Bahrain is a very small country and hence
its importance in international economy is relatively
insignificant. Bahrain's economy is dependent on oil,
pearls, fish products, tourism,
and business & commercial
investments. Standard of living is relatively high, mainly
due to oil revenues. However, the government is looking at
ways and means to increase external revenues from other
sources to strengthen Bahrain's economy.
In 2006, the Heritage Foundation published its Index of Economic Freedom in the Wall Street Journal. Bahrain was considered as the freest economy in the entire Middle East, putting it ahead of Israel, United Arab Emirates, and Qatar. Bahrain ranked twenty-fifth in overall free economy rating in the world.
The major source of income for the economy of Bahrain is the oil refinery situated on the island of Sitra with a capacity of 250,000 barrels per day. This refinery processes not only the oil produced locally but also the oil from Saudi Arabia which is transported through pipelines. Bahrain's oil production is around 40,000 barrels per day. Bahrain's oil reserves are somewhat limited and are anticipated to last another 10 to 15 years.
Another main source of income for Bahrain is the dry dock which could accommodate supertankers. The aluminum smelter, with an annual production of 525,000 metric tons, is another significant contributor to Bahrain's economy. Agriculture is done to a small extent. Dates are the main agricultural product that is exported. Poultry and dairy products are generally consumed locally. Fishery products are exported in a limited quantity.
The efforts of the government to develop Bahrain as an important financial hub, with banking, finance, and insurance companies operating on a big scale, are yielding favorable results. Bahrain had also emerged as a major communications center in the Middle East. Several large multinational companies operating in the Middle East have headquarters in Bahrain.
Bahrain's economy recovered from a current account deficit of $35 million in 2002, to post a current account surplus of $219 million in the year 2003, which subsequently rose to $442 million in 2004. Gross international reserves of Bahrain stood at $1.6 billion in 2004.
In 2006, the International Monetary Fund released its Financial System Stability Assessment on Bahrain's economy and its financial system. The IMF stated that the financial system performed strongly in a favorable climate and was expected to be the major contributor in overall economic growth of Bahrain. However, the IMF cautioned that overheating in the economy of other countries in the region could have a significant impact on Bahrain's economy. Still, the IMF maintained that Bahrainís economy was resilient enough to withstand the effects of such overheating in the neighborhood. Bahrain has the fastest growing economy in the region according to another survey.
Bahrain's economy is sustained by a heavy influx of foreign labor, majority of them being from Asian countries like India, Pakistan, Bangladesh, Sri Lanka, and the Philippines. Nearly 44% of the total employed persons were expatriates. However, unemployment rate, hovering above 10%, is a major cause for concern for Bahrain's economy.