Bahrain ranked freest Arab economy

Manama: Bahrain remained the freest economy in the Middle East and Arab world, according to the 12th annual Index of Economic Freedom by the US-based Heritage Foundation and The Wall Street Journal.

Bahrain was 25th in the overall ranking, well ahead of Japan, Spain, Italy and France. Kuwait, the second freest Arab economy, was 50th in the annual list.

The UAE was ranked 65th overall.

Only two non-GCC countries Jordan ranked 58th and Lebanon at 73rd posed some challenge to the six-state Gulf Cooperation Council.

Libya (152), Iraq (157) and Sudan (157) tailed the list of the 157 countries graded in the 2006 Index. Bahrain, Jordan and Morocco have signed Free Trade Agreements (FTAs) with the US which was 9th in the ranking, tied with Australia and New Zealand.

Countries receive a 1-5 rating, with one being the best, on ten broad measures of economic freedom: trade policy, fiscal burden of government, government intervention in the economy, monetary policy, capital flows and foreign investment, banking and finance, wages and prices, property rights, regulation and informal (or black) market activity.

The scores are averaged to create an overall score. The top finishers are classified as free economies, followed by mostly free, mostly unfree and repressed economies.

Hong Kong and Singapore led with 1.28 and 1.56 respectively. Bahrain scored 2.23 the lowest (best) score for the region.

The UAE had a score of 2.93, let down by higher (worse) scores (4 and above) for Property Rights and Foreign Investment. WTO rules should mean the UAE focuses on these restrictions during 2006.

Bahrain's relative success came from a greater sense of urgency in its embrace of economic liberalisation. The country's process for establishing a business is relatively straightforward the report argued. In addition, the Bahraini commercial law system has a relatively good reputation, despite bureaucratic procedures and labour laws that restrict the hiring of foreign workers.

According to the index, Bahrain's fiscal burden of government score is 0.7 point better this year. "Government expenditures as a percentage of GDP decreased 2.6 percentage points to 29.9 per cent, compared with a 4.5 percentage point increase in 2002," the report said.

The report noted that "as of December 2003, there were 357 financial institutions in Bahrain and that Bahrain's Central Bank in 2004 issued 17 new licences".

Property is secure, and expropriation is unlikely. According to the Econ-omist Intelligence Unit, "the Bahraini legal system has a good reputation, and foreign firms have been able to resolve disputes satisfactorily through the local courts."