Bahrain financial outlook stable says Fitch
Manama, July 11, 2013
Bahrain has eceived a major vote of confidence as Fitch, a leading global financial monitor, affirmed the kingdom's key ratings and stated that the outlook is stable.
Fitch Ratings affirmed the kingdom's long-term foreign currency Issuer Default Rating (IDR) at 'BBB' and local currency IDR at 'BBB+', according to a report in the Gulf Daily News, our sister publication.
The agency has simultaneously affirmed Bahrain's country ceiling at 'BBB+' and short-term foreign currency IDR at 'F3'.
The affirmation reflects the positive steps have been taken towards resolving the domestic political stalemate, with the National Dialogue restarting, the agency said.
Growth has rebounded after the unrest in 2011, picking up to 3.4 per cent in 2012 from 1.9 per cent the year before.
The normalisation of oil production, after technical problems, should allow growth to strengthen to 5.5 per cent this year, Fitch said.
Capital spending, manufacturing investment and a further recovery in tourism will support non-oil growth of around 3.5 per cent.
Fiscal deficits pushed the debt-to-GDP ratio to 36.6 per cent of GDP at the end of last year, on par with the 'BBB' median, the agency said.
Fitch expects debt-to-GDP to be above the peer median by the end of 2014.
However, owing to government deposits in the banking sector worth 18 per cent of GDP, net debt-to-GDP is forecast to remain significantly below the 'BBB' median, the agency said.
At 3.2 per cent of GDP last year, the general government deficit is greater than the 'BBB' median.
Savings to capital expenditure resulting from the use of GCC development funds are forecast to lower the deficit to 2.1 per cent of GDP in 2013, when Fitch estimates the fiscal break-even oil price will be around $115 per barrel, Fitch said.
Tackling wages and subsidies (around 60 per cent of total spending) is challenging, Fitch said.
The external position is much stronger than 'BBB' rated peers.
A current account surplus of 12.1 per cent of GDP is projected for 2013, which will be the 10th consecutive year that a surplus has been recorded, Fitch added.
Bahrain's overall net creditor position, 81.1 per cent of GDP at the end of last year, was the strongest of any similar-rated sovereign, the agency said.
GDP per capita and broader human development and business environment indicators are close to the 'A' median, Fitch added.
The strong regulatory framework and local skill base, combined with low costs, are key supports to the financial sector.
The banking sector is large, at 750 per cent of GDP, but has weathered a number of global, regional and local shocks in recent years.
Assets of the wholesale banking sector (480 per cent of GDP) have begun to pick up after five years of decline.
The government is addressing vulnerabilities within Islamic retail banks, Fitch said.
The stable outlook reflects Fitch's assessment that upside and downside risks to the rating are currently well balanced. – TradeArabia News Service