Positive steps have been taken towards resolving the domestic political stalemate in Bahrain, Fitch Ratings has said in a new report as it affirmed the country’s long-term ratings.
Fitch affirmed the Gulf kingdom’s long-term foreign currency issuer default rating (IDR) at ‘BBB’ with a stable outlook.
The rating agency noted that a national dialogue had restarted with the reformist Crown Prince promoted to First Deputy Prime Minister.
“However, progress has been slow and low-level violence continues,” it said in the report.
Fitch said growth has rebounded after the political unrest in 2011, picking up to 3.4 percent in 2012 from 1.9 percent the year before.
“The normalisation of oil production, after technical problems, should allow growth to strengthen to 5.5 percent in 2013. Capital spending, manufacturing investment and a further recovery in tourism will support non-oil growth of around 3.5 percent,” The report added.
Fitch said fiscal deficits pushed the debt-to-GDP ratio to 36.6 percent of GDP at the end of 2012, on par with the ‘BBB’ median.
Fitch said it expects debt-to-GDP to be above the peer median by end-2014. However, owing to government deposits in the banking sector worth 18 percent of GDP, net debt-to-GDP is forecast to remain significantly below the ‘BBB’ median, it added.
“At 3.2 percent of GDP in 2012, 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 percent of GDP in 2013,” the report said.
It added that tackling wages and subsidies (around 60 percent of total spending) would be challenging in the current political environment.
The external position is much stronger than ‘BBB’ rated peers, Fitch said, with a current account surplus of 12.1 percent of GDP projected for 2013, which will be the 10th consecutive year that a surplus has been recorded.
Bahrain’s overall net creditor position, 81.1 percent of GDP at end-2012, is the strongest of any similar-rated sovereign, Fitch added.
“GDP per capita and broader human development and business environment indicators are close to the ‘A’ median,” its report said.
Fitch said the stable outlook reflected its assessment that upside and downside risks to the rating are currently well balanced.