S&P Global Ratings (S&P) has affirmed Bahrain's creditworthiness at 'B+/B' with a stable outlook, acknowledging the nation's commitment to fiscal consolidation efforts despite ongoing economic challenges. This decision comes after a previous revision of the outlook to 'stable' from 'positive' in November 2023, reflecting anticipated wider fiscal deficits than previously projected.
While commending Bahrain's dedication to fiscal discipline, S&P highlighted potential spending pressures that could exacerbate the budget deficit. The agency anticipates these deficits to average around 4. 4% of the Gross Domestic Product (GDP) from 2024 to 2027, exceeding earlier forecasts of 3. 8%.
However, the stable outlook underscores S&P's confidence in Bahrain's ability to manage these challenges. The agency expects the government to implement measures aimed at narrowing the budget gap. Additionally, potential support from other Gulf Cooperation Council (GCC) member states could serve as a further buffer.
On the positive side, S&P acknowledges Bahrain's efforts to bolster its non-oil revenue streams, a crucial step towards diversifying the economy and reducing dependence on hydrocarbon exports. Structural reforms aimed at achieving this goal are anticipated to continue, albeit at a slower pace than initially envisioned.
The 'B+/B' rating falls within the 'highly speculative' category, indicating a significant level of credit risk. However, the stable outlook suggests that S&P believes this risk is currently contained. An improvement in Bahrain's fiscal situation, leading to a decline in net debt relative to GDP, could prompt an upgrade in the rating. Similarly, a strengthening external position characterized by wider current account surpluses could also lead to a more favorable credit assessment.
S&P's assessment aligns with recent pronouncements by other credit rating agencies. In April 2023, Moody's Investors Service (Moody's) changed Bahrain's outlook to stable from negative while affirming its 'B2' ratings. Similarly, Fitch Ratings maintained Bahrain's 'B+' rating with a stable outlook in July 2023.
Bahrain's economic outlook remains tethered to global oil prices. While the recent surge in oil prices has provided a temporary reprieve, long-term economic sustainability hinges on successful diversification efforts. The government's commitment to fiscal consolidation and structural reforms will be crucial in determining Bahrain's future economic trajectory.