By Andy Sambidge
Ratings agency says Gulf kingdom will fare best of the economies directly hit by widespread unrest
Bahrain will fare best of the economies directly hit by widespread unrest in 2011, ratings agency Fitch has predicted.
Fitch Ratings said that official data published since political unrest in the Middle East and North Africa (MENA) erupted shows a mixed picture for the countries most directly affected.
"Egypt appears to be the hardest hit, with Tunisia somewhat less affected, while Bahrain's public and external finances have improved compared to Fitch's previous forecasts due to the increase in oil prices," says Richard Fox, Fitch's head of Middle East and Africa Sovereign Ratings group.
Fitch had previously downgraded Tunisia by one notch, Egypt by one notch and Bahrain by three notches.
Political unrest was the immediate trigger for these downgrades, but expectations of economic damage, both short-term and possibly longer-term, were contributory factors, to varying degrees, Fitch said.
"Changing political realities will have implications for economic policy and will keep ratings under negative pressure, although so far there have been no signs of any radical departure from previously sound policy regimes," Fox said.
Fitch added that the economic impact in all three countries will be mitigated by increased external financial assistance, with Bahrain getting aid from its Gulf Co-operation Council (GCC) partners.
Official data published so far in 2011 is limited on all three countries but it suggests Egypt has been hardest hit, with GDP falling by seven percent in Q1.
"Bahrain will fare best of the three in 2011, with higher oil prices buoying public and external finances and a promised $1bn of annual GCC assistance funding increased public spending intended to placate political grievances," Fox said.
He added that deposits in local retail banks had remained steady, although wholesale banks' consolidated balance sheets shrank by 15 percent in Q1.
"Longer-term reputational damage to the financial sector could be of more concern. Moreover, Bahrain is furthest away from a lasting resolution to its political problems, which could hamper its medium-term economic prospects," Fox said.