Bahrain’s outlook stable says Fitch

MANAMA: Fitch Ratings has affirmed Bahrain’s long-term foreign-currency Issuer Default Rating (IDR) at ‘B+’ with a stable outlook.

The US-based agency said the kingdom’s ratings are supported by strong financial backing from partners in the GCC, high GDP per capita and human development indicators even relative to ‘BBB’ medians and a recent track record of robust macroeconomic performance.

Weak public finances, high fiscal dependence on oil revenue, low levels of forex reserves and political constraints all weigh on the ratings, although policy focus on fiscal consolidation has sharpened significantly since 2018.
Fitch said in 2020, Bahrain’s real GDP contracted by 5.8pc and government debt surged to 129pc of GDP from 101pc of GDP in 2019, owing to the combined impact of the coronavirus pandemic and sharply lower oil prices.
The general government budget deficit widened to 16.8pc of GDP in 2020, from 7.5pc of GDP in 2019, reflecting a 40pc collapse in hydrocarbon revenue, 2.2pc of GDP of Covid-19-related emergency spending and a 10pc decline in nominal GDP.

In the medium term, Fitch believes that Bahrain will require further Gulf backing (from Saudi Arabia, Kuwait and the UAE), which it will receive given the country’s small size and strategic importance.

However, this may be contingent on Bahrain enacting further fiscal reforms, given that Gulf creditors are themselves facing fiscal challenges.

The $10 billion GCC financing package builds on existing channels of support, including the $7.5bn (close to 20pc of GDP) GCC Development Fund provided in the wake of the Arab Spring unrest in 2011.

Bahrain’s large and developed financial sector plays an important role in providing funding for the broader public sector, without private credit growth being crowded out.

The negative net foreign asset position of retail banks has worsened in recent years and asset quality may deteriorate post pandemic as forbearance measures taper, but the sector remains well capitalised, the agency said.




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