Effects of the Global Financial Crisis on the Kingdom of Bahrain and Its Central Bank - Essay Example

Eventually, major stock markets across the globe collapsed as big financial organizations failed or had to be bought out. The financial crisis had negative impacts on the gross domestic product of countries which in most cases declined indicating slowed economic growth rate (Mohsen, Abdulla and Jalal 1). The financial crisis also led to a reduction in employment rates globally and the general livelihood of the people deteriorated. The Kingdom of Bahrain is no exception to the devastating outcomes of the crisis.

Even though the small Island in the Middle East has its economy supported by the oil and natural gas sector, the financial sector also contributes greatly to its economic development (Hamad 1). Effects Financial Crisis on the Economy the Kingdom Of Bahrain Like all other countries, the financial crisis affected the kingdom of Bahrain’s overall economic growth. Economic development of every country depends on continued investment. However, following the financial crisis, there were reduced liquidity levels in Bahrain which meant that capital investment reduced (Hamad 1).

As in other countries globally, the financial crisis also resulted in slowed employment growth rate in Bahrain due to a reduction in the total economic output. Another notable aftermath of the global recession on Bahrain was a significant collapse of some financial institutions. In addition, the financial crisis negatively affected the profitability of banks since financial sector is a major contributor of economic growth, and slowed down the growth in GDP since financial institutions also influence asset acquisition and capital investment.

and with the global financial crisis, the country experienced slowed investment rates (Mohsen, Abdulla and Jalal 4). The 2007/2008 financial crisis led to negative social impacts on the people of Bahrain. Following the financial crisis, liquidity reduced affecting the purchasing power of the people is negatively affected. Consequently, the welfare of the people in Bahrain was adversely affected by the crisis. Those mostly hit by the financial crisis were in the low income bracket, especially since most of them lost their jobs.

In addition, Bahrain benefits from trade tourism as people coming from different regions to trade (Hamad 1). However, the financial crisis made it more expensive for tourists to visit the country, significantly reducing the country’s foreign exchange earnings. The collapse of the stock market and some financial institutions also led to some people from Bahrain losing their investment, leading to psychological shock. Psychological shock also affected individuals who are dismissed from work or whose businesses had to be closed down.

Despite the far reaching effects of the financial downturn, the financial health of Bahrain remained relatively stable. Although Bahrain’s economy was affected, it still grew at a steady rate and the banking sector remained relatively stable. According to Hamad, the relatively minimal effect of the global financial crisis on Bahrain resulted from the fact that the country does not approach its economic development in a “boom and bust approach” (1). The country has used a steady and gradual approach to economic and financial development while keeping the markets regulated.

However, the Central Bank of Bahrain (CBB) has been instrumental in ensuring that it averted the negative outcome of current financial crisis. The Role of Central Bank in Bahrain The