Bahrain’s ambitious economic reform programme is still on track, the head of the country’s sovereign wealth fund Mumtalakat said, despite a year of turmoil in the Gulf state.

Mahmood Al Kooheji said the fund would focus its investment activities on Bahrain and Gulf Cooperation Council countries and that while it would not engage in more debt issues, its subsidiaries could seek to refinance loans.

The $ 9bn fund, among the smallest sovereign wealth funds in the Gulf Arab region, may offload a portion of its stakes in its portfolio firms and reinvest the proceeds in the country’s economy, Kooheji said. “Maybe the way forward will be for us to reduce our shareholding in some portfolios we have. But our focus would be to reinvest that money into the Bahraini economy,” the CEO said.

“We are not shying away from international investment but really our focus is Bahrain and maybe the GCC, because we find big demand and growth from the GCC market.”

Set up in 2006 to help diversify Bahrain’s economy away from hydrocarbons, Mumtalakat has stakes in over 35 commercial entities, including Bahrain Telecommunications Co, Gulf International Bank, and Aluminium Bahrain, one of the largest aluminium smelters in the world.

Its profits have been hindered by rising losses at its ailing Gulf Air unit. But the fund has no plans to tap debt markets following a successful $ 1.5bn debt issue by the Bahrain government late last month. Mumtalakat itself has a $ 750m bond maturing in June 2015.

“We might go ahead and refinance some loans but we have a clear plan to gradually reduce the borrowing, which is still reasonable, that we have... If there is any borrowing it will be done at a company level and based on the strength of projects they want to implement,” Kooheji said.

Critics have accused Bahrain of sidelining some figures in an economic reform process that has aimed to create a free labour market where Bahrainis have the skills and education to fight for blue and white collar jobs.

As a part of those reforms, Bahrain has already shelved the controversial sponsorship scheme for foreign workers. However, Bahrain has suspended gathering fees from companies for each foreign national they hire, money that is intended to help train Bahrainis. The levy is gathered by the Labour Market Regulatory Authority mainly for use by job training and business support body Tamkeen, which Koojehi also heads.

The government said that the waiver on fees would continue to the end of the year. Kooheji said this was to reduce the strain on businesses as the economy tries to recover. With street protests continuing, tourism and banking have suffered.

The unrest roughly halved economic growth in the non-Opec oil producer to 2.2 percent in 2011, the worst performance since a 0.3 percent contraction in 1994, when oil prices fell to $ 13 per barrel. They are currently around $ 100. Opposition groups, led by majority Shias, are demanding reforms that would give the elected parliament more power to legislate and form governments.

“We are recovering and the private sector in particular has been lobbying and saying ‘give us more breathing space to sort our things out’,” Kooheji said. “Today, with all the programmes that Tamkeen has in the pipeline, it would take more than two years before they run out of funds.”

Kooheji said Tamkeen - which has helped a third of all businesses in Bahrain - had accumulated 80m dinars ($ 210m) by end 2011, after spending 24m dinars on projects that year. He said unemployment was not a major worry, pointing to Bahrain’s system of unemployment benefit.

Kooheji said the economic reform was on track because it had the backing of H M King Hamad bin Issa Al Khalifa. “We always have to make adjustments and react to the market conditions, but it is continuing. All the elements of the reform are happening,” he said. “His Majesty (King Hamad) launched the economic reform of the country so the support comes from the top and this support is irreversible.”

He said Bahrain, an island of over 1.2 million people, around half of whom are expatriates, had weathered the global financial downturn since 2008 and the effects of the country’s political turmoil because of the strength of the reforms.

Kooheji also said Mumtalakat was working to ensure government financial support for troubled national carrier Gulf Air, a Mumtalakat holding.

“We have with the government prepared plans and options and alternatives on how to go forward and what will be the best way to take the company forward into profitability,” he said. “Mumtalakat is not in a position to fund Gulf Air losses, the government has funded Gulf Air losses in the past,” he said.

Kooheji also said Mumtalakat’s aluminium subsidiary Alba - where he is chairman - had not yet decided whether to go ahead with a sixth production line by 2015 but he believed it would.

“I’m very optimistic that this project will see the light,” he said, pointing to space reserved for the sixth unit in an aerial map of the Alba plant. He said the board would likely make a decision by the end of the year, after which bank feasibility studies would take place.