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Fitch Ratings has affirmed Bahrain’s long-term foreign and local currency issuer default ratings (IDR) at Fitch Ratings BBB- and BBB, respectively. The issue ratings on Bahrain’s senior unsecured foreign and local currency bonds have also been affirmed at BBB- and BBB, respectively. The agency has simultaneously affirmed Bahrain’s country ceiling at BBB+ and short-term foreign currency IDR at F3.
The outlook has been revised to negative from stable.
Fitch’s lower oil price forecasts are outweighing the effects of a greater policy response than previously anticipated on Bahrain’s fiscal position. Fitch forecasts a wider double-digit deficit of 12.5 per cent of GDP in 2015 and 10.7 per cent of GDP in 2016, remaining in high single digits by 2017, up from 5.5 per cent of GDP in 2014. This adds to recorded fiscal deficits every year since 2008.
Fitch said Bahrain has a break-even oil price of $122 a barrel in 2015 and $118 a barrel in 2016.
Fitch said fiscal adjustment measures introduced so far have proven insufficient to offset lower oil prices. As a result, total revenues will fall to 17 per cent of GDP in 2015 and 2016, from 24 per cent of GDP in 2014.
Fitch said it expects double-digit fiscal deficits to lift general government debt substantially to 58.6 per cent of GDP in 2015 and 65.2 per cent of GDP in 2016, from 46.1 per cent of GDP in 2014. This is well in excess of the BBB median of 42.8 per cent of GDP in 2015.
Fitch said Bahrain’s real growth has been relatively resilient to lower oil prices. Fitch forecasts favourable growth of 3.3 per cent in 2015 and 3 per cent in 2016 and 2017, somewhat below 4.5 per cent in 2014 as oil production remained flat in 2015. GCC projects have been ramped up significantly this year and will continue to be so over the forecast horizon. Growth will be supported by the non-hydrocarbon sector expanding by 4.4 per cent in 2015, and remaining around 3.5 per cent in 2016 and 2017 underpinned by manufacturing, construction, tourism and social and personal services.
Bahrain’s external balance sheet remains stronger than its BBB rated peers. The net external creditor position of 56 per cent of GDP compares with a peer median of -4.2 per cent of GDP. A small current account deficit of 2.3 per cent of GDP is forecast in 2015 recovering to surplus in 2016.
A $1.5bn bond issue this year highlights continuing financing flexibility after a $1.25bn issuance at a 30-year maturity in August 2014, Fitch said.