DUBAI: Fitch Ratings downgraded Bahrain's debt by one notch to junk status on Tuesday, leaving all three of the world's big rating agencies assessing the kingdom below investment grade as low oil prices undermine its finances.
"Lower oil prices are causing a marked deterioration in Bahrain's fiscal position," Fitch said as it cut Bahrain to "BB-plus" with a stable outlook. "There is progress in fiscal consolidation, but not a clear path towards reaching a more sustainable position."
Ratings agencies have also downgraded or assigned negative outlooks to the debt of the other five oil exporters in the Gulf Cooperation Council (GCC), but Bahrain, which lacks the ample hydrocarbon and financial reserves of its neighbours, is the only GCC member to be given junk status.
S&P rates Bahrain "BB" with a stable outlook and Moody's Investors Service "Ba2" with a negative outlook. Both are one notch below Fitch.
Fitch predicted Bahrain's general government budget deficit would widen to 15.4 percent of gross domestic product in 2016 from 14.8 percent in 2015, assuming an average Brent oil price of $35 a barrel.
It said unrest among the kingdom's Shi'ite population meant Bahrain's political situation was more unstable than 85 percent of all countries rated by Fitch.
However, Bahrain has remained able to issue debt in the international markets, partly because of its close political links to Saudi Arabia.
"Were Bahrain to find itself in trouble, we suspect that the rest of the Gulf, particularly Saudi Arabia, would step in with financial support," commented Jason Tuvey, Middle East economist at London-based Capital Economics.
"After all, any crisis in Bahrain could turn the focus on to them. Offering a bail-out could ultimately prove to be the cheaper option for the rest of the GCC."
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