Bahrain has been ranked the fourth most favourable tax regime in the world, out of the 55 leading economies surveyed in a report published by the World Economic Forum (WEF). The Financial Development Report ranked Bahrain 27th, overall, in terms of its financial system, up from 28th last year.
It concluded that Bahrain 'shows competitive advantages in the quality of its institutional environment, including a substantially liberalised financial sector and solid corporate governance."
As a result of its open, well-regulated economy Bahrain is ranked as having the fourth most favourable tax regime, is 12th in terms of being a low-cost location to do business and is hailed for its substantially liberalised financial sector (16th) and solid corporate governance (20th).
The report also gave Bahrain high marks for liberalisation of the domestic financial sector, with Bahrain being ranked first for corporate governance and second for private monitoring of the banking industry.
Saudi Arabia ranked 24th (2008: 27th), Kuwait ranked 30th (26th) and the UAE ranked 20th (14th). Alongside Saudi Arabia, Bahrain was the only GCC member to show an improving positional trend.
Further to the Financial Development Report rankings, Bahrain was also rated as the 16th freest economy in the world in the 2009 Index of Economic Freedom and 33rd of 127 economies in Forbes" Best Centres for Business 2009 report.
Weak dollar sparks inflation fears
Reviving growth and a weak dollar are threatening to push up prices in Gulf states.
Oil prices have more than doubled from this year's trough while the dollar is at a 14-month low. Already in Saudi Arabia, the Gulf's biggest economy, annual inflation posted its first increase in four months in September.
"I am looking for only a pretty modest uptick in inflation but my concern is that price growth may accelerate more significantly," said Simon Williams, chief economist at HSBC in Dubai.
"Most immediately, the weak dollar will boost the local currency cost of imported goods. The dollar peg is also likely to lead to Gulf policy rates being held at exceptionally low levels even when regional economic growth has resumed, adding to the upward pressure on consumer and asset prices." Williams said.
The IMF sees Gulf states posting robust growth of 5.2 per cent next year after 0.7 per cent in 2009 as crude prices recover.
Average inflation in the region should stand at 3.8 per cent next year, slightly up from 3.7 per cent in 2009 but well down from 10.8 per cent in 2008, according to the IMF.
"They are currently tying themselves to the US-led monetary policy so it is a decision on whether they want to continue that going forward," said Caroline Grady, economist at Deutsche Bank in London.
"Currently the only real tool they can use (to tackle inflation) is fiscal policy; they do not really have an independent sovereign monetary policy. This (dropping the peg) would be the way to do it."
FDI to boost tech expertise
Abu Dhabi is seeking foreign direct investment (FDI) mainly to boost its technology transfer and not for capital, a top government official has said, adding that the emirate seeks to become much more industrialised.
Britain is the leading global investor in the UAE, its 14th largest export market in the world - ranking higher than China and India - according to the Foreign and Commonwealth Office. Trade volumes are increasing at 15 to 20 per cent annually.
UAE traders" business confidence up
Near-term confidence among business traders in the UAE has improved versus the last quarter, according to a survey by HSBC, although expectations of defaults and broken agreements remain the same.
Around 46 per cent of UAE participants in the HSBC Trade Confidence Index survey said they expected trade business to increase over the next three months, up from 34 per cent in the second quarter and outnumbering the 40 per cent who expected trade volumes to remain at current levels.
HSBC said around 30 per cent of UAE traders said they would need more trade finance in the next three months, compared with a previous 39 per cent.
A third of respondents saw an improvement in access to trade finance in the coming three months, the same as in the second quarter, while 57 per cent expected their ability to access trade finance to remain the same, HSBC said.
UAE traders" outlook on supplier risk remained high, with 80 per cent responding that their expectation of suppliers not honouring trade agreements remained the same, HSBC said.
Bahrain's revenues soar 59pc
Bahrain's consolidated results for the fiscal year ended December 31 revealed a substantial increase in the state revenues of 58.6 per cent over the approved budget estimates, and 31.5 per cent higher than the fiscal year 2007.
The state budget performance report also revealed a decrease in total expenditure by 10.7 per cent due to a fall in recurring expenditure and projects by 5.6 per cent and 23.2 per cent respectively.
Government debts fell by 33.1 per cent, compared to 2007, with external loans representing 28 per cent of the total borrowings.
Government debts stood at 14.8 per cent of the gross domestic product, against 19.2 per cent in 2007.
Interest on government loans decreased by 18.7 per cent to BD53,610 ($142,000) compared to BD65,904 in 2007.
Interest on loans in 2008 represents 2 per cent of total revenues, 2.6 per cent of expenditure, and 0.7 per cent of GDP against 3.2 per cent, 3.6 per cent and 1 per cent in 2007 respectively.