× Government Healthcare Islamic Finance Oil And Gas Real Estate Technology Telecom Tourism

S&P revises Bahrain's outlook to stable on fiscal reform push, higher oil prices

November 28, 2021
oil and gas

S&P Global Ratings has revised Bahrain's outlook to stable from negative, as the fiscal consolidation program to strengthen its economy is seen to improve the sovereign's fiscal position. Higher oil prices as well as support from other GCC members will balance out the high government debt and debt-service burden, it added.

'We expect the economy to rebound in 2021, with real GDP expanding by 2.8 percent, as oil prices increase and regional economic activity picks up,' said S&P.

The ratings agency affirmed Bahrain’s ‘B+/B’ long and short-term foreign and local currency sovereign credit ratings, it said in a statement on Saturday.

“The stable outlook indicates we expect the government to implement measures to reduce the budget deficit and benefit from support from other GCC sovereigns if needed, in addition to the direct fiscal support already pledged,” said S&P.

The Gulf country, which has one of the regions widest budget deficits, has put in place a comprehensive spending and revenue review, including doubling VAT to 10 percent, as it looked for ways to steady its finances and rebalance the budget.

The S&P report forecasts a fiscal deficit of about 7 percent of GDP in 2021, down from 13 percent in 2020, largely due to the increase in oil prices in 2021.

'We expect the increase in VAT could contribute receipts of about 3.0 percent of GDP over the medium term, up from about 1.7 percent in 2021.'

The ratings agency said despite expected improvement in the budgetary position, the government's fiscal position remains weak. 'We expect net debt to GDP to average 125 percent and interest to revenue to average 28 percent over 2021-2024. Even with non-oil revenue-raising measures, the government's dependence on oil receipts (accounting for about 70 percent of revenue in 2019) will continue over the forecast period to 2024.'

Bahrain’s debt climbed to 133 percent of GDP in 2020 from 102 percent in 2019, according to the International Monetary Fund.

The agency also expects Bahrain will receive full disbursements under the $10 billion GCC fiscal support package and the potential for additional financial support remains. Bahrain received $6.3 billion over 2018-2020.

However, the ratings could be lowered over the next year if the government's budgetary consolidation measures prove insufficient to constrain its net debt and debt-servicing burden, if foreign currency reserves decline, or if Bahrain's banking system faces 'a significant withdrawal of short-term external financing'.