Bahrain’s fiscal vulnerability to oil prices remains acutely high, S&P in a report said.
“Given an expected average oil price of $108 per barrel in 2013, the general government deficit of 2% of GDP should be manageable. Notably, the deficit includes the previous two years of increases in both current and capital expenditures (including the capital injections for Gulf Air), while not accounting for GCC development spending. Assuming slightly lower oil prices of $97 per barrel in 2014-2016, we forecast deficits between 3 per cent to-3.5 per cent of GDP for 2014-2017. Past increases of transfers and subsidies financed temporary consumption, and we view the structural flexibility of public finances as having worsened in 2011-2012,” S&P statement added.
“Our relatively moderate deficit forecasts are therefore based on larger oil receipts (from higher oil production in both the Abu Safa and the onshore oil field) and modest spending constraints as subsidy reforms commence and national capital expenditures are shifted to GCC-sponsored projects. Oil- and gas-related revenues continue to account for 87% of total central government revenues, making the budget highly sensitive to declines in price or volume. On the other hand, substantial liquid assets give the government short-term expenditure flexibility.
“In terms of overall public debt, we believe the general government debt burden will increase moderately from current levels. At end-2012, general government assets roughly equaled debt; the net asset position of a few years ago had eroded. However, we expect net general government debt will rise to 12% of GDP by 2017.