Fitch forecasts the state budget deficit will widen to 15.5% of gross domestic product in 2020 from 4.6% in 2019
Bahrain received its first downgrade in over two years from Fitch Ratings, which said it will likely “require further Gulf backing” in the medium term as the government’s finances remain under strain.
“This may be contingent on Bahrain enacting further fiscal reforms given that Gulf creditors are themselves facing the need for fiscal consolidation,” Fitch analysts, including Toby Iles, said in a report.
Fitch on Friday cut Bahrain’s sovereign rating one step to B+, leaving it four levels below investment grade and on par with Egypt, Bolivia and Jamaica. The outlook is stable.
Bahrain, the smallest among economies of the six Gulf Cooperation Council members, is vulnerable despite a $10 billion bailout package secured from its regional allies in 2018. Lower oil prices and the global coronavirus pandemic have combined to stretch its finances.
The government sold $2 billion in dollar bonds in May, boosting foreign reserves that dropped to just 290 million dinars ($769 million) a month earlier, the lowest in decades. The stockpile recovered to 674.9 million dinars in May, according to the latest central bank data.
“The extent of the shock has worsened Bahrain’s credit profile and aggravated risks to medium-term debt sustainability,” Fitch’s analysts said.Fitch forecasts the state budget deficit will widen to 15.5% of gross domestic product in 2020 from 4.6% in 2019