S&P ratings boost for Bahrain economy
Manama, January 28, 2013
Credit rating agency Standard & Poor’s (S&P) has revised Bahrain's outlook from negative to stable after the Kingdom successfully emerged from its 2011 crisis.
The ratings agency also affirmed its long- and short-term foreign and local currency sovereign credit ratings on Bahrain at 'BBB/A-2'.
In its review, S&P said the Kingdom has emerged from its 2011 crisis with a more restrained but stable economy, primarily driven by a buoyant hydrocarbon sector and higher public spending.
The ratings agency pointed out that the outlook revision reflects its view of Bahrain's stable growth, the likelihood of no further deterioration in the political environment, the inflow of GCC development funds, and its medium-term assumption of higher oil prices of about $111/barrel.
“Our ratings on Bahrain are supported by the country's strong external and fiscal positions, both of which are underpinned by hydrocarbon resources,” said the S&P in its statement.
“The ratings are constrained by our view of continuing domestic political tensions and the fiscal dependency on sustained high oil prices and international donor support. The ratings are also constrained by stagnating real GDP per capita growth, which we forecast at about one per cent in 2013-2015. This is low compared to peers at similar wealth levels," it stated.
“Bahrain's fiscal vulnerability to oil prices remains high. Given an average oil price of $111/barrel in 2012, the general government deficit was negligible, but transfers to the state-owned airline, Gulf Air, and valuation changes raised net general government debt by an estimated 3.7 per cent of GDP," said the ratings agency in its note.
"Assuming similar oil prices, we forecast deficits of roughly 2 per cent of GDP for 2013-2015. Oil- and gas-related revenues account for 88 per cent of total central government revenues, making the budget highly sensitive to declines in price or volume," it added.
Welcoming the ratings boost, the Central Bank of Bahrain (CBB) said the outlook on the Kingdom reflects S&Ps view of Bahrain’s stable growth, well regulated financial system, and manageable asset quality risks amongst other factors.
In his comments, CBB governor Rasheed Mohammed Al Maraj said, "The revision of Bahrain’s outlook by S&P is not only recognition of Bahrain’s sound economic management and financial stability but also a vote of confidence in the Kingdom’s economic reform programme, and ability to withstand different shocks."
“Our ambition to be a dynamic, competitive, well-diversified economy for the post-oil era continues, and encouraging the growth and diversification of the financial sector is a major pillar in that strategy,” he added.-TradeArabia News Service