Bahrain’s cabinet announces a timely economic support package
Iran’s attacks during the current conflict have created significant economic implications for the Kingdom of Bahrain and the rest of the Gulf Cooperation Council (GCC) countries. Drawing upon the practical lessons learned during Covid-19, on 13th April, Bahrain’s cabinet, led by HRH Crown Prince Salman bin Hamad Al Khalifa, Prime Minister of the Kingdom of Bahrain, announced a broad economic support package, representing a timely intervention to help businesses and households weather the storm.
Iran’s multidimensional aggression toward the GCC countries since the beginning of March 2026 has had a complex impact on their economies that extends well beyond the standard adverse impact of a war. The most salient element is the kinetic damage to the six states’ infrastructure, which has decreased or stopped production in several key businesses, such as Alba and Bapco Energies. However, additional effects take the form of sharply curtailed exports due to the de facto closure of the Strait of Hormuz, decreased investor confidence creating liquidity problems, disruptions to operations that depend upon air travel due to the airspace closure, the large contraction in tourist activity caused by shelter in place directions, and more.
Many of these mechanisms mimic the economic challenges that arose during the Covid-19 pandemic, both in terms of their form and their outcomes. In particular, the expected result is downward pressure on financial liquidity, employment, and aggregate output as businesses struggle with the reduced cashflow. However, a key difference is the level of experience: in 2020, all countries were essentially composing an appropriate fiscal stimulus from scratch because the last comparable global pandemic – the Spanish Flu of 1918 – predated modern globalized and financially integrated economies. This inevitably spawned a large amount of trial and error.
In contrast, in 2026, Bahrain’s government has much better knowledge about how to effectively intervene. First, its database of business activity is vastly superior, with systems such as value-added tax and new legislation by the Ministry of Industry and Commerce furnishing the government with detailed and up-to-date information on the operations of all businesses. This helps the Kingdom identify where its assistance is most acutely needed.
Second, it has hands-on experience with the various interventions attempted in 2020 – in addition to knowledge gained by observing the experience of other countries – allowing it to draft more effective policies from the outset. A notable example is the case of loan deferrals: the first tranche was announced in April 2020, and was followed by two further extensions, each coming six months later. The deferrals also varied in terms of the provision or absence of interest relief. Local research institutions – including Derasat Center – conducted surveys to gauge the impact of the various iterations, furnishing monetary authorities with valuable insights on how best to assist both creditors and debtors in navigating the liquidity squeeze.
With this in mind, the 2026 economic support package contains two primary elements. First, loan deferrals for individuals and businesses in a similar guise to the 2020 edition, combined with targeted liquidity support to maintain the banking system’s solvency. Here, the Central Bank of Bahrain is not just leveraging its Covid-19 experience – it is making full use of the lessons learned during the 2008 global financial crisis, most notably the preemptive and real-time measures required to ensure that liquidity shortages among banks are corralled before they metastasize into sources of systemic instability.
Second, private sector wage support taking the form of salary payments to Bahrainis working in the public sector for the month of April. Ostensibly, this is a way of ensuring that Bahraini families’ income is uninterrupted by the prevailing crisis, thereby enabling them to pay for everything from food to power and car loans to mortgages.
However, at a deeper level, this is about preventing a crisis-induced depreciation in Bahrain’s accumulated human capital. In sectors such as finance and telecommunications, high rates of Bahrainization have been achieved based on years of investing in education and training. Transient job losses can – under extreme circumstances such as those the region is currently witnessing– transform into secular unemployment that becomes much more expensive to reverse if left unattended, as well as constituting a large amount of foregone productivity as talented and experienced workers sit at home.
Accordingly, moving proactively to prevent the job loss is often the more prudent course of action, and this is reflected in the many Bahrainis who benefited from this forward-looking approach during Covid-19 and continue to work in sectors that thrived upon the resumption of normal economic activity. One such illustration is Bahrain’s airport, which is a veritably world-class and award-winning installation that virtually ground to a halt during the pandemic, but was – until February 28 – the heartbeat of Bahrain’s connected economy. A myopic wave of redundancies in 2020 would have significantly impeded the return to prosperity that accompanied the eventual lifting of pandemic-related restrictions.
Notably, it is not just the workers whose human capital is being preserved: it is also the organization-specific knowledge and experience that remains intact when the government functions as a private sector wages backstop. Rather than facing an intractable dilemma featuring the choice between bankruptcy without layoffs or layoffs with a loss of critical experience, businesses benefiting from the government salary disbursal program can maintain operations and the knowledge embedded in their talented staff.
By leveraging the hard-won lessons of the pandemic, Bahrain is demonstrating that its economic resilience is built on agility rather than just endurance. This intervention does more than provide a temporary lifeline; it safeguards the Kingdom’s most valuable assets – its human capital, financial system, and institutional knowledge – ensuring that when the current storm passes, the nation’s path to recovery remains clear and its workforce ready to rebuild.
Dr. Omar Ahmad AlUbaydli, Studies and Research Director
