Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
40
2.4. HIGH-INCOME COUNTRIES
Bahrain
Laws regulating capital inflows
The Kingdom of Bahrain has no capital controls on the amount of foreign currency allowed to
be moved in and out of the country. The Central Bank of Bahrain (CBB) acts as a de facto
regulator of capital controls, as it is responsible for maintaining the peg of the Bahraini dinar
to the US dollar (at BD0.376:US$1), which it has enforced since 1980. The peg is a central pillar
of the central bank’s monetary policy; hence keeping the channels for capital flows into the
country open is vital in order to maintain currency stability. As a consequence, Bahrain’s
monetary and exchange rate policies serve in effect as the kingdom’s capital control
regulations.
Foreign companies investing in Bahrain fall under the 2001 Commercial Companies Law,
which is enforced by the Ministry of Commerce (MoC). Business that include foreign capital are
subject to the same laws and obligations covering reporting requirements and capital
structure as local businesses.
Institutions overseeing capital flows
As the institution responsible for maintaining the value of the dinar, the Central Bank of
Bahrain monitors the country’s balance of payment positions and intervenes to support the
dinar while also providing a foreign-exchange facility for the local banking system to buy and
sell US dollars and dinars.
The MoC is the coordinating body for establishing businesses in Bahrain and foreign firms are
required to apply to the MoC and the relevant authority for their industry to begin operations.
For example, to establish a financial business, firms must apply to the CBB, which serves as
regulator for the sector, or to the Telecommunications Regulatory Authority for a mobile
phone operation.
Debt and equity instruments
Considering the importance of the financial sector to Bahrain’s economy, compared with its
peers the country has a relatively small stock market, the Bahrain Bourse. As of mid-
September 2013, it had a market capitalisation of US$17.5bn. This compares with nearly
US$100bn for the Abu Dhabi Securities Exchange or US$417bn for the Tadawul in Saudi
Arabia. The Bourse is heavily geared towards financial services companies (banks and
investment managers), although it also lists some local industrial entities, including a share of
state-owned Aluminum Bahrain.
Bahrain also has a deep local debt market. The government routinely issues Bahraini dinar
denominated Treasury bills to finance its investment programmes, helping to soak up some of
the liquidity in Bahrain’s banking system. In addition, the Bahraini government is a regular