Looking to the Long Term: Healthy GDP Growth Has Not Obscured the Serious Economic Challenges Looming

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The latest 24-page summary of Bahrain's economic indicators does not make for easy reading, but for those rooting for the kingdom's economy, there will be a sense of satisfaction when the final page is turned. Gross domestic product (GDP) in 2003 climbed by 6.8 per cent--a figure many countries in the world could only dream of--and, even better, the non-oil sector was the motor for expansion. But while the government is no doubt pleased to see diversification efforts paying off, the challenges facing the kingdom's economy allow for no relaxation in the pace of reform.

Non-oil GDP expanded by 7.9 per cent in 2003 to BD 2,579 million, reducing the oil sector's overall contribution to 15.7 per cent of the total (see table). As output from the aged Bahrain field dwindles, the figure is likely to tail off further in years to come. Hopes that Manama might be granted the entire 150,000 barrels a day (b/d) from expansion of the shared Abu Safah field appear to be dashed, surprising observers who assumed there would be a pay-off because Bahrain part-funded the work with Saudi Arabia. On the bright side, the government's receipt of its existing share is now vindicated, rather than being at the mercy of its neighbour's goodwill.

"The active role of the private sector led by the financial sector accounted for the excellent growth rate in 2003," says Finance & National Economy Minister Abdullah Sail. "We hope to sustain that growth rate this year and beyond." While oil may be taking a back seat, rocketing crude prices throughout 2004 will play their part in achieving this aim. As will …