Unrest credit issue for Oman, Bahrain says S&P
Dubai, March 22, 2011
Standard & Poor's Ratings Services said the ongoing political tensions in Bahrain (BBB/Watch Neg/A-3) and Oman (A/Watch Neg/A-1) remain a significant issue for the credit standing of both sovereigns.
This is despite the Gulf Co-operation Council's (GCC's) March 10 announcement of a $20 billion economic aid support package over 10 years, to be shared equally between the two governments, said a S&P statement.
"We are of the view that the economic aid package, which we understand will be comprised of donations by GCC members, will not immediately affect Bahrain's and Oman's ratings or ratings outlooks. That said, we believe the package could contribute positively to the sovereigns' creditworthiness over the medium to longer term."
"We view the aid package as significant. Bahrain's share amounts to about two-fifths of its GDP and Oman's portion equates to about one-sixth of its GDP," said the statement.
While package details - project selection criteria, disbursement procedures and timing, and donor control over the disbursement process - remain to be specified, we understand that the funds are primarily aimed at infrastructure and housing over a ten-year horizon.
"In our opinion, the package should give both sovereigns the fiscal flexibility to increase infrastructure spending and will implicitly address youth unemployment," the ratings agency said.
"While housing and infrastructure are labor intensive, however, such projects may demand skills not readily found among the local populations. Two key questions are raised. How quickly are local youths likely to take up these employment opportunities? If they do not, will these opportunities be filled by foreign contractors, as in the past?"
"We note, however, the sheer size of package suggests it will have significant impact at least over period of funds disbursement. Depending how, and on what, funds are spent, new infrastructure could bolster the countries' growth potential in longer term, and help diversify economies away from their currently-still-strong dependence on oil," it stated.
S&P said it is monitoring the political tensions in both countries.
"The ratings on Bahrain have been lowered by an aggregate three notches since the onset of political tensions, and both sovereigns remain on CreditWatch with negative implications, indicating the possibility that the ratings will be lowered if political tensions continue,"it added.