Bahrain’s fiscal outlook downgraded to negative by S&P Global Ratings

Investing.com -- S&P Global Ratings has downgraded Bahrain’s fiscal outlook from stable to negative, citing persistent fiscal pressures and weaker oil prices. The ratings agency also confirmed the ’B+/B’ long- and short-term foreign and local currency sovereign credit ratings for the nation.

The negative outlook reflects the ongoing risks to Bahrain’s public finances. S&P Global Ratings projects that Bahrain’s gross government debt will increase to 144% of GDP by 2028, up from 130% in 2024. This increase is expected due to weaker oil prices, stalling fiscal reforms, and market volatility, which could further strain the government’s interest burden and foreign currency reserves.

The ratings agency also stated that Bahrain’s government debt has been growing at a higher rate than anticipated in recent years. A potential deterioration in foreign currency reserves due to weaker market access for funding could also put pressure on the ratings.

S&P Global Ratings mentioned that it could revise the outlook to stable if Bahrain’s government implements fiscal reforms that significantly increase revenue and narrow fiscal deficits, and if there is an improvement in foreign currency reserves.

The agency highlighted the fiscal deficit, which is projected to widen to about 7.0% of GDP in 2025, compared with 5.2% in 2024. This increase is due to lower oil prices, market volatility, higher social spending, and risks to funding costs.

The government has initiated various non-oil revenue measures to support some of its targets under the Fiscal Balance Program (2018-2024). These include the introduction of a value-added tax in 2019, which was doubled to 10% in 2022. However, social spending and interest costs have increased beyond initial expectations.

Bahrain’s fiscal flexibility is constrained by high debt levels. The agency estimates that the gross general government debt will rise to 144% of GDP in 2028, from 130% of GDP in 2024.

The ratings agency also noted that Bahrain’s foreign currency reserve position remains weak. It expects foreign currency reserves to slightly decline to $3.0 billion-$3.5 billion by end-2025, based on the high external financing needs.

S&P Global Ratings anticipates that Bahrain’s economic growth will remain muted, averaging 2.3% annually through 2027. Non-oil sectors, including manufacturing, tourism, transportation, and hospitality, have been receiving investment and have been supportive of growth.

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