Mubasher: Moody's Investors Service has downgraded Bahrain's long-term issuer rating to B1 from Ba2, and maintained the negative outlook, according to a report issued on Saturday.
The main driver for the rating downgrade is Moody's view that the credit profile of the Bahraini government will continue to weaken materially in the coming years, predominantly because despite some fiscal reform efforts there is a lack of a clear and comprehensive consolidation strategy.
In particular, the rating agency expects Bahrain's government debt burden and debt affordability to deteriorate significantly over the coming two to three years, the report explained.
In the absence of more aggressive measures, Moody's expects that Bahrain will continue to post large fiscal deficits over the coming years. Following deficits of 18% of GDP on average in 2015 and 2016, Moody's expects fiscal deficits to stay in double-digits in 2017 and 2018, and narrow only gradually over the following years.
Meanwhile, Moody’s said that the negative outlook reflects continued downside risks to the rating, which manifest themselves in heightened government and external liquidity risks.
Furthermore, although Bahrain has benefited from the support of neighbouring countries during times of stress in the past, such support at this juncture lacks clarity, both in its form and timeliness.
Moody's has also lowered Bahrain's long-term foreign-currency bond ceiling to Ba2 from Baa3 and long-term foreign-currency deposit ceiling to B2 from Ba3. The short-term foreign-currency bond ceiling was lowered to Not Prime from Prime-3, whereas the short-term foreign-currency deposit ceiling remains unchanged at Not Prime. Bahrain's long-term local currency country risk ceilings were lowered to Ba1 from Baa2.
In addition, the long-term foreign-currency bond ceiling for Bahrain off shore banking center was lowered to Baa1 from A3 while the foreign-currency deposit ceiling remains at Baa1.
The short-term foreign-currency bond and deposit ceilings for Bahrain - Off Shore Banking Center remain unchanged at Prime-2.
