Unresolved domestic political tensions in Bahrain will cause annual GDP growth per capita to stagnate over the next four years, according to Standard & Poor's Ratings Services.
The rating agency said in a new report, which affirmed the Gulf kingdom's long- and short-term foreign and local currency sovereign credit ratings at 'BBB/A-2' with a stable outlook, that fiscal dependency on sustained high oil prices were also constraining ratings.
At the same time, S&P affirmed the 'BBB/A-2' ratings on the Central Bank of Bahrain.
"The ratings are constrained by our view of Bahrain's unresolved domestic political tensions and its fiscal dependency on sustained high oil prices and international donor support," the S&P report said.
"The ratings are also constrained by stagnating real GDP per capita growth, which we forecast at barely one percent in 2014-2017. This is low compared to peers at similar wealth levels," it added.
"Given that headline real GDP growth will average about four percent per year, wealth creation is accruing only modestly for the average Bahraini."
While S&P said it believes a post-crisis status quo has been established, this still includes occasional street protests, entrenched polarisation between the two sectarian communities, internal communal divisions, and the relegation of economic policymaking.
Parliamentary elections scheduled for October 2014 may indicate whether or not the political process is able to once again start absorbing various grievances, the ratings agency said.
"In our view, broad economic growth and the socioeconomic targeting of the GCC development funds -channeling about $4 billion of grants mainly into housing, infrastructure, electricity and water projects in 2014-2017 - will likely assist the political process," it added.
S&P also said Bahrain's fiscal vulnerability to oil prices "remains acutely high", adding that given an expected average oil price of $108 per barrel in 2013, the general government deficit of two percent of GDP should be "manageable".
Assuming slightly lower oil prices of $97 per barrel in 2014-2016, S&P forecast deficits between 3-3.5 percent of GDP for 2014-2017.
Oil- and gas-related revenues continue to account for 87 percent of total central government revenues, despite Bahrain's relatively large financial sector.
S&P noted: "The stable outlook reflects our opinion that political risks and the potential for sharp oil price declines are unlikely to be severe enough to lead to a
downgrade in the near term. Large-scale public investment and greater hydrocarbon production should support growth prospects."