MANAMA: Mahmood Rafique, Editor: S&P Global Ratings has revised its Bahrain’s outlook to positive from stable and affirming B+/B long and short-term foreign and local currency sovereign credit ratings.
“The positive outlook indicates that we expect the government will continue implementing fiscal reforms to reduce the budget deficit and benefit from additional support from other Gulf Cooperation Council (GCC) sovereigns, if needed,” S&P in a statement said.
“We could raise the ratings over the next 12 months if the government’s budgetary position improves beyond our expectations, contributing to a sustained reduction in net debt to GDP alongside strong and sustained current account surpluses that would support Bahrain’s external position. Further support for an upgrade could come from an acceleration in productivity-led per capita economic growth,” on upside scenario the S&P stated.
Talking about the downside scenario, the S&P said that it could revise the outlook to stable if the government’s net debt and debt-servicing burden increase beyond our current assumptions despite fiscal consolidation measures. “We could also revise the outlook to stable if foreign currency reserves decline sharply, limiting the government’s ability to service its external debt and weighing on monetary policy effectiveness.”
“The positive outlook on Bahrain reflects the government’s ongoing implementation of the updated Fiscal Balance Program (FBP) via expenditure cuts and revenue-enhancing initiatives, including the doubling of the value-added tax (VAT) rate to 10 per cent from 5 per cent on January 1, 2022. “Preliminary fiscal data point to a minor balanced-budget position underpinned by a 120 per cent increase in nominal tax revenue year on year, surpassing projected annual inflation of about four per cent. At the same time, Bahrain’s economy is benefiting from the surge in regional activity tied to elevated oil prices. In the second-quarter 2022, real GDP expanded 6.9% year on year, the highest pace of quarterly growth since 2011. In our view, the government’s willingness, and ability to pursue budgetary reforms under the FBP has strengthened fiscal policymaking in recent years.
“In first-half 2022, Bahrain posted a record current account surplus of about 17% of GDP, supported by high oil and aluminum prices. We forecast an external surplus of about 7.1% of GDP over 2022-2024, in line with the upward revision to our oil and aluminum price assumptions, before reverting to historical deficits of 5.4% of GDP in 2025 as commodity prices moderate.
