Bahrain’s struggling economy has been given a boost after ratings agency Standard & Poor’s (S&P) revised its outlook for the country from negative to stable.
The US-based firm also affirmed its positive outlook for the country’s local and international currency sovereign credit rating at BBB/A-2.
S&P said it based its decision on Bahrain’s “stable growth, the likelihood of no further deterioration in the political environment, the inflow of GCC development funds, and our medium-term assumption of higher oil prices of about $111 a barrel”.
The agency added that despite the lingering effects of the political turmoil of 2011-12, a “post-crisis status quo had been established” in Bahrain.
S&P also noted that Bahrain’s fiscal position remained vulnerable and was highly dependent on oil prices remaining consistently high.
Based on an average oil price of $111 a barrel, S&P forecasts budget deficits of roughly 2 per cent of gross domestic product for 2013-2015.
On a positive note, Bahrain’s partners in the GCC have committed $1bn in non-debt financing over the next decade to help sustain the country’s economic recovery.
S&P did provide a caveat in its rating reversal, stating that it could lower its rating “if there were an unexpected escalation of political turmoil such that economic prospects were weakened or external and fiscal performances were threatened”.
It also added that “if oil prices were to fall below $100 a barrel for a sustained period, if difficulties arose in dispensing GCC development funds, or if other government expenditure pressures weakened the fiscal profile, [it] could lower the ratings”.