• US-based Standard & Poor’s affirms its BBB-/A3 negative rating for Bahrain
  • Growing deficits due to lower oil prices are the main concern
  • GDP growth is set to slow to 2.3 per in 2015

New-York based ratings agency Standard & Poor’s (S&P) has affirmed Bahrain’s BBB-/A3.

The outlook for the government and the central bank remain negative.

S&P bases its concern on continuing lower oil prices, as it estimates Bahrain’s 2014 breakeven price at nearly $123 a barrel. This is more than double the current oil price.

Bahrain derived 65 per cent of fiscal revenues from oil in 2014, and 85 per cent from related oil and gas industries.

The budget projects a fiscal deficit of 12.8 per cent of GDP in 2015, increasing from 3.6 per cent in 2014. However, S&P projects that the overall deficit will increase to 9.5 per cent of GDP in 2015, from a surplus that averaged 1 per cent of GDP between 2007-2013.

The government’s debt burden has doubled since 2009, reaching about 43 per cent of GDP at the end of 2014. S&P estimates that net debt will reach 20 per cent of GDP by the end of 2015, from 10 per cent of GDP in 2014 and a net asset position of 12 per cent of GDP in 2010.

Recurrent expenditures will make up 87 per cent of spending this year, including 42 per cent on salaries and 30 per cent on subsidies.

S&P calculates that planned cuts represent only BD400m ($1bn), or 3 per cent of GDP, although these may not be carried out due to their effect on poorer segments of the population and political sensitivities.

It also expects the financial sector, a major part of Bahrain’s non-oil economy, to slow in 2015 as the overall economy weakens. Annual GDP growth is projected to slow to 2 per cent between 2015 and 2018, from 4.5 per cent in 2014.

However, this is offset by GCC financial support, which is expected to reach $750m (2.1 per cent of GDP) in 2015.

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