Debt burden to grow heavier for Bahrain if oil prices remain low, says ratings agency S&P

Bahrain will face a rising debt burden should the oil markets remain bearish, says credit ratings agency Standard & Poor’s.

S&P has reaffirmed Bahrain’s foreign and local currency sovereign credit ratings at BBB minus and A-3, respectively. But it said its outlook for the country remained negative.

Last year, about 65 per cent of Bahrain’s fiscal revenue came from crude oil receipts.


Those receipts have shrunk along with the decline in oil prices.

Brent crude plunged from US$115.06 a barrel on June 19 last year to $46.59 a barrel on January 13. It closed at $63.87 a barrel on Friday.

Bahrain’s fiscal break-even oil price was estimated at $123 a barrel last year, the highest of all GCC states, said S&P in a report released on Friday. As about 80 per cent of Bahrain’s exports are linked to oil, the current account is expected to fall into a slight deficit.

“We estimate that the government will be in a net debt position of almost 20 per cent of GDP by the end of this year, from 10 per cent of GDP last year and a net asset position of 12 per cent of GDP in 2010,” said S&P.

Last week, S&P reported that deposits at UAE banks were expected to fall this year because oil prices remained weak. In February, it downgraded Bahrain’s rating from BBB/A-2 along with Oman’s rating because of the falling oil prices.

Bahrain’s fiscal deficit this year is expected to be 12.8 per cent of GDP, compared to 3.6 per cent of GDP last year, according to its annual draft budget.

Wages account for 42 per cent of government expenditure, with subsidies making up 30 per cent.

Measures to decrease the “social expenditures that were initially designed to placate Bahrain’s polarised society is politically sensitive and could face delays”, said S&P.

The country’s real GDP growth this year is estimated at 2.3 per cent, down from 4.5 per cent last year. It is expected to edge up to 2.5 per cent next year.

The key growth driver would be disbursements from the GCC Development Fund, with about $10 billion in funding committed over a 10-year period, according to S&P. That is expected to offset non-budgeted government capital expenditure cuts.

The fund is expected to inject a further $750 million, or 2.1 per cent of GDP, this year to boost private-sector activity, and construction of new roads, housing and schools. Bahrain received $150m as part of the fund through December 15 last year.

“Bahrain’s proximity to the large market of Saudi Arabia, its strong regulatory oversight, a relatively well-educated workforce and its low-cost environment still provide incentives for investment and create potential for the future growth of the non-oil economy,” said S&P.

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