By Andy Sambidge
Central bank delight after rating agency changes kingdom's outlook to stable from negative
The Central Bank of Bahrain has welcomed the decision of rating agency Standard and Poor's to revise the outlook of Gulf kingdom from negative to stable.
At the same time, S&P affirmed the country's long- and short-term foreign and local currency sovereign credit ratings at 'BBB/A-2'.
The rating agency said: "The outlook revision reflects our view of Bahrain's stable growth, the likelihood of no further deterioration in the political environment, the inflow of Gulf Cooperation Council (GCC) development funds, and our medium-term assumption of higher oil prices of about $111/barrel."
S&P added that it believed that although Bahrain's 2011 political crisis weakened growth potential and damaged the country's reputation as a business services hub, a post-crisis status quo has been established.
Rasheed Mohammed Al Maraj, governor of the Central Bank of Bahrain, said: "The revision of Bahrain's outlook by S&P is not only recognition of Bahrain's sound economic management and financial stability but also a vote of confidence in the Kingdom's economic reform programme, and ability to withstand different shocks."
He added: "Our ambition to be a dynamic, competitive, well-diversified economy for the post-oil era continues, and encouraging the growth and diversification of the financial sector is a major pillar in that strategy."
In its report, S&P said Bahrain's fiscal vulnerability to oil prices remains high, with oil- and gas-related revenues accounting for 88 percent of total central government revenues.
"We do not believe the general government debt burden will increase significantly from current levels... we expect net general government debt will rise to a still modest 5-6 percent of GDP by 2015," S&P said.
"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," it added.
S&P said it could lower the ratings if there were an unexpected escalation of political turmoil such that economic prospects were weakened or external and fiscal performances were threatened.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.