Moody’s Investors Service said on Thursday it has downgraded Bahrain’s long-term government issuer rating to Baa 3 from Baa2 due to expected deterioration in the government’s finances as a result of the oil price shock.
The rating agency said in a statement that it maintained the negative rating outlook as it feels that it reflects the uncertainty regarding the government’s response to the fiscal challenges posed by a prolonged period of lower oil prices.
Moody’s estimates that Bahrain’s general government fiscal balance averaged about -4 per cent of GDP (gross domestic product) between 2009 and 2014. As a result of persistent fiscal deficits, general government debt has risen to an estimated 48 per cent of GDP at the end of 2014, up from only 13 per cent in 2008.
Moody’s expects Bahrain’s government finances to deteriorate further as a result of the low oil price environment, due to the very high dependency of government revenues on hydrocarbon revenues. Oil and gas related revenues account for close to 90 per cent of total government revenues.
In its rating action, Moody’s has also lowered Bahrain’s foreign currency bond ceiling to Baa 1 from A3 and the foreign-currency deposit ceiling to Baa 3 from Baa2.
The short-term foreign currency bond ceiling was maintained at Prime-2 (P-2), whereas the short-term foreign-currency deposit ceiling was lowered to P-3 from P-2. The local-currency country risk ceilings were maintained at A3.
