S&P says Bahrain damage mostly limited to tourism

Rating agency maintains negative outlook but says most sectors escape major impact
S&P says Bahrain damage mostly limited to tourism
Bahrains King Hamad Al-Khalifa has announced constitutional reforms following the unrest
By Andy Sambidge
Wed 25 Jan 2012 06:08 PM

Rating agency Standard & Poor's said on Wednesday that the outlook for Bahrain remains negative, indicating the likelihood of a downgrade if renewed political tensions, slower growth, or lower oil prices weaken its economy.

S&P said that in its view the dynamics of Bahrain's internal political conflict "remain unchanged, with entrenched polarisation indicating prolonged tensions".

It added that although most sectors have not suffered materially from the unrest, it saw growth coming only from the hydrocarbon sector and government spending.

In affirming the Gulf kingdom's long- and short-term sovereign credit ratings at 'BBB/A-3', it said it expects GDP per capita growth will remain stagnant in the short-term.

At the same time, it also affirmed the 'BBB/A-3' ratings on the Central Bank of Bahrain.

"Nearly a year after major unrest in Bahrain, tensions still remain. Violent street protests with occasional fatalities occur regularly and there is entrenched polarisation between the two sectarian communities, which both also appear internally divided," S&P said in a new report.

It added that King Hamad's announcement of constitutional reforms on January 15 had "failed to revive a broader political process that includes opposition representatives".

S&P said the immediate damage to the real economy from the unrest had been limited.

"Business activity has remained largely unaffected except for the comparatively small tourism sector. The outflow from Bahrain's international financial sector also appears to be stabilising, at least for banks," it added.

S&P estimated that increased hydrocarbon production, as well as public spending, generated real GDP growth of 2.2 percent in 2011, lifting to 3.5 percent in 2012 and 4.1 percent in 2013.

The unrest has weakened Bahrain's fiscal position, with the budget-balancing oil price rising to $120/barrel, the rating agency added.

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