Bahrain’s economic growth stood at 3.2 per cent in 2009, a strong figure by comparison to its Gulf neighbours, and surpassing most economists’ expectations.

Indeed, the kingdom’s growth has been less severely curtailed by the financial crisis than the rest of the GCC, largely because it did not experience the same degree of overheating seen elsewhere in the 2003-2008 boom years.

However, the growth recorded last year represents just under a 50 per cent decline from the 6.1 per cent achieved in 2008.

With its high level of dependence on its financial and hydrocarbon sectors, accounting for 21 and 11 per cent of the country’s GDP respectively, Bahrain’s economy has had reasonably large exposure to the crisis - its banking sector’s assets shrunk by 12.1 per cent during 2009 to stand at $221.8bn.

It has also suffered from problems in neighbouring countries. The defaults by Saudi Arabia’s Saad Group and Algosaibi led to the insolvency of Bahrain’s Awal Bank and the International Banking Corporation, which have since been taken into administration.

Meanwhile, Dubai’s debt woes have made it harder for Bahrain to successfully issue sovereign bonds to plug any fiscal deficits, with investors remaining wary of tapping international debt markets.

But sound regulation by Bahrain’s Central Bank has certainly helped steer the kingdom through difficult waters, and despite recent setbacks, Bahrain remains home to the largest number of banks in the region and the largest Islamic banking segment in the world.

Going forward, Bahrain’s challenge is to aggressively pursue its diversification efforts in order to strengthen the role of the private sector, boost employment and effect a successful transition to a knowledge-based economy.