Al Maraj says country's credit rating cuts were uncalled for; hasn't changed plans on issuing bonds
Bahrain’s central bank cut its forecast for economic growth this year by two percentage points after protests earlier this year prompted the deployment of regional troops to restore order.
Central bank governor Rasheed Al Maraj said the Arabian Gulf country’s economy will expand 3 percent, down from an earlier forecast of 5 percent. Monetary policy in the country is broadly appropriate, he said.
“We were very optimistic,” Al Maraj said in an interview on Thursday at his Manama office. “The recent developments, I think, have affected the growth outlook.
Bahrain’s government declared a three-month state of emergency on March 15 after troops arrived to help quell protests led by members of the Shiite Muslim majority for increased democracy and civil rights, inspired by the toppling of leaders in Tunisia and Egypt.
“The economic and financial indicators that we have so far do not show a serious deterioration in the economic fundamentals,” Al Maraj said. “There has been some slowdown in some sectors, like the retail, the hotels, restaurants and services in general and this is natural during such events.”
Al Maraj said recent cuts to the country’s credit rating by Moody’s Investors Service in May to Baa1 from A3 and by Standard & Poor’s in March to BBB from A-, were “uncalled for and without substantial data that can support their concern.”
Bahrain’s default risk, or credit default swaps, rose 51 basis points, or 0.5 percentage point, this year. The contracts peaked at 359 on March 15 before plunging 122 basis points to 237 today, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
“This is one of the indicators that gives you that the cuts probably were not warranted in the first place,” he said. “We are seeing the Bahrain bond prices are almost back to the level at the beginning of the year.”
Officials in Bahrain, a nation of 1 million, and Saudi Arabia, which lies across a 16-mile (26-kilometer) causeway, say the protests were provoked by Iran to destabilise the country. Shiites make up about 70 percent of Bahrain’s population of less than 1 million, and many retain cultural and family ties to Iran as well as with Shiites in neighbouring Saudi Arabia. Bahrain is home to the US Navy’s Fifth Fleet.
“Bahrain unfortunately has been not viewed very objectively in the media, which affected the perception outside,” Al Maraj said. “Negative media reporting will always affect people who are not aware or do not have firsthand information about Bahrain.”
Al Maraj said his country hasn’t changed plans on issuing bonds and is monitoring markets to determine the proper time.
“The bond is still on the agenda,” he said, without elaborating on the details. “We wanted to time it properly so it reflects truly the creditworthiness of Bahrain rather than to do it at a time when the market was not reflecting the cost of borrowing properly.”
The sale may take place sometime in the second half of this year, he said.
On June 1, Bahrain set expenditure for two fiscal years, 2011 and 2012, at a total of BD6.2bn ($16.4bn) in a budget that forecasts a deficit of BD1.6bn.
The deficit for the 2011 fiscal year is expected at BD835.7m on a total expenditure of BD3.124bn , state-run Bahrain News Agency reported June 1. The budget gap for 2012 is seen at BD727m, with spending set at BD3.075bn, it said. It said the deficit would be covered through borrowing.