Economic policy in the short term will be focused on restoring confidence in Bahrain's economy. The political unrest will weaken foreign investment and tourism and may prompt financial institutions to seek to shift operations to other regional centres like Dubai or Doha, the Qatari capital. Throughout the forecast period Bahrain will try to diversify the economy away from oil, stimulate private-sector growth and foreign investment, and address unemployment among nationals. "Bahrainisation" quotas for employing nationals have not solved the unemployment problem, and the government is therefore pursuing other initiatives, including a 1% levy on salaries to fund an unemployment insurance scheme and a levy on employers for each expatriate they employ, which finances training for nationals. (The levy on employers has been suspended because of the political unrest to support the private sector.) Since 2009 expatriate workers have had greater legal freedom to change jobs, which should slowly contribute to narrowing the cost gap between them and nationals, although there are questions about implementation.

The privatisation programme has lost some momentum and is likely to mark time as long as the political unrest continues. Large firms such as the Bahrain Petroleum Company (Bapco) will remain state-controlled. Aluminium Bahrain (Alba), which operates a large smelter and is majority-owned by Bahrain's sovereign wealth fund, Mumtalakat, has sold a block of shares through an initial public offering. However, the fund retains a majority stake. Gulf Air, the loss-making national carrier, will remain on Mumtalakat's balance sheet despite earlier speculation that it was going to be returned to the government. Demand for privatised companies will largely be from regional investors or banks, many of whom will have an indirect link to the government.

Bahrain's reputation as a safe, stable financial hub will be severely damaged by the political unrest. The financial sector contributes a similar share to GDP as hydrocarbons and Bahrain had traditionally served as a regional financial centre. The recent regional unrest has also increased pressures on international firms dealing with repressive regimes, and many companies may reconsider their dealings with Bahrain as part of efforts to manage risks to their reputation. Bahrain will try to promote its "business friendly" image and stress the transparency of its financial regulations and the track-record of the Central Bank of Bahrain to encourage foreign financial institutions to set up in Bahrain rather than in its GCC peers, and extra concessions are expected to be offered to offset the damage done by the recent unrest. We believe that the government would support any of the major Bahraini retail or wholesale banks were they to encounter financing difficulties, but this support would be contingent on the state's own ability to borrow easily.