MANAMA: S&P Global Ratings has affirmed its B+/B long and short-term foreign and local currency sovereign credit ratings on Bahrain. The outlook is stable.
“The stable outlook reflects our expectation that the Bahraini government will use the window of opportunity provided by the pledged financial support from other Gulf Cooperation Council (GCC) sovereigns to accelerate the pace of
fiscal consolidation against remaining external risks, exacerbated by the very low central bank reserves,”S&P in a statement said.
“We could raise the ratings if Bahrain’s budgetary position improves significantly beyond our current expectations. We would also consider raising the ratings if GDP per capita trend growth strengthens. We could lower the ratings if external pressures intensify, for example, if the exchange rate peg were to come under pressure due to a sharp increase in demand for foreign currency,” it added.
“In October 2018, Bahrain received pledges of $10 billion (26% of 2018 GDP) of
support from Kuwait, Saudi Arabia, and United Arab Emirates. We expect disbursements to take place over the length of the government’s 2019-2022 budgetary consolidation program and that initial disbursements will begin before the end of 2018.
“The exact nature of the support package, in terms of whether or not the funds will be conditional on Bahrain achieving specific fiscal targets and the type of funding to be provided, for example, grant or debt funding, has yet to be announced. We have assumed that support will come in the form of debt.In our view, the support package provides the government with time to enact further budgetary consolidation measures with a reduced need to fund its ongoing deficits externally, thus easing financial market
pressures.
“Nevertheless, the replacement of one source of external debt financing with another means that our forecast for the level of central bank international reserves is largely unchanged.
“The recently announced pledge is on top of the $10 billion announced in 2011
($7.5 billion excluding Qatar). We estimate about $2.5 billion of the amount
pledged in 2011 has been disbursed so far. This slow pace of disbursement
relates to the package being targeted at infrastructure projects, and the
related administrative delays in fund absorption. We expect the new support
will cover budgetary expenditure and will be disbursed more quickly within the
next four years.
