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Home  The Gulf in The Press Bahrain enters top free economies list
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Bahrain enters top free economies list |
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Friday, 30 May 2008 |
Bahrain Tribune - Bahrain, the financial capital in the Middle East with over 400 banks and financial institutions, emerged as one of the freest economies in the world with economic freedom of 99.7 per cent. Bahrain's economy is 72.2 per cent free, which makes it the world's 19th freest economy. Its overall score is 1 percentage point higher than last year, partially because of an improving investment climate, according to latest Heritage Foundation 2008 assessment.
The negative changes, according to the Foundation, have been caused by worsened scores in inflation and corruption. Bahrain is ranked 1st out of 17 countries in the Middle East/North Africa region, and its economy is ideal in several respects, such as tax and banking freedom.
The Heritage Foundation Index for 2008 in its other major indicators rated business freedom of 80 per cent, trade freedom 80.80 per cent, fiscal freedom 99.7 per cent, freedom of government 80.3 per cent, monetary freedom 74.3 per cent, investment freedom 60 per cent, financial freedom 90 per cent, property rights 60 per cent, freedom from corruption 57 per cent and labour freedom 40 per cent.
Bahrain's economy is very free for the Middle East region, with higher scores than the world average in eight of the 10 factors of fiscal freedom. Business freedom, fiscal freedom, monetary freedom, and especially financial freedom are high.
The only weakness is labour freedom, which is 22 points below the world average, largely due to regulations mandating the hiring of Bahrainis. The absence of income or corporate taxes in all industries except oil gives Bahrain a competitive commercial advantage globally.
Bahrain's overall ranking is changed from last year's primarily because of a methodological refinement that provides for a better assessment of non-tariff barriers. The economy also would perform better if state-owned enterprises were not so dominant, generating three-quarters of government revenue.
Bahrain's commercial law system is relatively straightforward, but starting, operating, and closing a business can be slowed by an uncoordinated regulatory environment. Despite steps to streamline licensing and approval procedures, complicated bureaucratic procedures still make obtaining a business license difficult.
Bahrain's simple average tariff rate was 4.6 per cent in 2005. There are few non-tariff barriers, but a limited number of products are subject to import and export prohibitions and licenses, enforcement of intellectual property rights remains a concern, and the government uses price controls and subsidies to manage inflation and promote domestic supplies. An additional 10 percentage points is deducted from Bahrain's trade freedom score to account for non-tariff barriers.
Historically, Bahrain has imposed no taxes on personal income. However, in 2006, for the first time, the government announced that it would levy a 1 per cent tax on Bahraini nationals' salaries to fund an unemployment scheme. Most companies are not subject to corporate tax, but a 46 per cent corporate tax rate is levied on oil companies. In the most recent year, overall tax revenue as a percentage of GDP was 5.5 per cent.
Inflation is relatively low, averaging 2.8 per cent between 2004 and 2006. Relatively stable prices explain most of the monetary freedom score. An additional 15 percentage points is deducted from Bahrain's monetary freedom score to adjust for extensive price controls and subsidies that distort domestic prices for many food products, electricity, water, and petroleum.
Bahrain is a regional financial hub, and both foreign and local individuals and companies have access to credit on market terms. The central bank introduced new business classification rules in 2006, aiming to make the financial framework more flexible. The International Monetary Fund has praised Bahrain's financial supervision as effective and its regulation as modern and comprehensive.
Corruption is perceived as present. Bahrain ranks 36th out of 163 countries in Transparency International's Corruption Perceptions Index for 2006.
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