rain uses a pegged currency, the dinar (BD.376/U.S. Dollar), which is rigidly controlled and historically very sound.
While consumer price inflation is very low, below one percent since 1995, inflation as gauged by the GDP deflator is a lot higher. In 2000, inflation was 14 percent due to oil prices mandating sharp increased in the current value of GDP output (Overview, 2002). Unemployment remains a major source of social tension. While official estimates put the unemployment rate at just under six percent, analysts estimate it may be much higher in the 30 percent range in disenfranchised populations like the Shiites (Overview, 2002). During the 1990s the country experienced a high level of social unrest as the ShiiteÆs demanded parliament be restored.
Despite BahrainÆs declining oil reserves, petroleum revenues still make up over 25 percent of GDP (Overview, 2002). Stability in the region was threatened by the dispute between Bahrain and Qatar over ownership of the Hawar Islands. The dispute was finally resolved with Bahrain taking possession of the islands that offer potentially new oil fields. BahrainÆs new leadership understands the importance of diversifying the economy in order to stimulate economic growth and lessen dependence on dwindling petroleum reserves and fluctuating oil prices. As one economist maintains, ôDespite the decline in the importance of petroleum production in the Bahraini economy, at present the treasury and the economic performance of the country at large remain highly sensitive to fluctuations in international oil pricesö (Overview, 2002, 2).
Despite BahrainÆs new leadership pursuing a course of economic liberalization and diversification, leaders understand the importance of trying to reinvigorate its petroleum industry. Nevertheless, Bahraini leaders are increasingly modernizing and diversifying the economy. A major motivator in doing so is the considerable health, education and oth...