Bahrain’s Fiscal Commitment Maintains Credit Standing Amid 2023 Challenges
Bahrain’s dedication to fiscal consolidation has been recognized by S&P Global Ratings, which reaffirmed its “B+/B” credit rating with a stable outlook despite facing challenges in 2023.
Although the transfer and convertibility assessment for Bahrain remains at “BB-,” S&P anticipates structural reforms aimed at strengthening the non-oil revenue base, albeit at a slower pace.
Outlook and Expectations
S&P’s report stated that the stable outlook reflects the expectation that Bahrain will continue implementing measures to reduce its budget deficit, potentially receiving additional support from other Gulf Cooperation Council sovereigns if needed.
Conversely, the ratings could see improvement if Bahrain’s fiscal situation exceeds expectations, leading to a reduction in net debt relative to GDP or if current account surpluses widen, enhancing the country’s external position.
However, potential downside risks include a significant increase in government debt or a sharp decline in foreign currency reserves, which could impact debt servicing and monetary policy effectiveness.
Future Prospects and Challenges
S&P outlined an optimistic scenario for Bahrain, suggesting an upgrade in the country’s standing if the government surpasses expectations by reducing net debt relative to GDP through improved budgetary performance.
The agency noted that its assessment is based on the anticipation of Bahrain fortifying its financial stance up to 2027, despite facing considerable deficit expansion in 2023.
Looking ahead, S&P expects broader fiscal deficits averaging 4.4 percent of GDP from 2024 to 2027, influenced by various factors such as oil production declines and ongoing reforms.
Financial Support and Market Dynamics
S&P assumed that Bahrain would receive the remaining $2.8 billion of the $10.2 billion GCC support package pledged by Saudi Arabia, the UAE, and Kuwait in 2018, with potential for additional financial support beyond 2024.
The agency highlighted Bahrain’s annual external debt redemptions and its successful issuance of sukuk and conventional bonds earlier this year, supported by strong investor demand and favorable pricing dynamics.
Despite challenges, Bahrain’s diverse economy, financial sector oversight, and workforce provide a foundation for resilience, although stagnant GDP per capita levels may pose underlying economic challenges.