Mubasher: Moody's Investors Service on Monday changed its outlook for the kingdom of Bahrain’s issuer ratings to stable from negative and affirmed the ratings at B2.
“The key driver of the outlook change to stable is Moody's assessment that Bahrain's government and external liquidity risks, while remaining elevated, have materially reduced following the announcement of a $10 billion financial support package from Bahrain's Gulf Cooperation Council (GCC) neighbours,” Moody’s said in its report.
It added that financial support alongside fiscal consolidation measures, namely the Fiscal Balance Program (FBP) which will accompany these measures, will bolster investor confidence and contribute to reducing the Bahraini government’s financial needs.
As a result, this “will slow [down] a further weakening in Bahrain's public finances in a way that is consistent with a B2 rating,” the ratings agency said.
As for the B2 rating affirmation, Moody’s explained that despite the recent reduction, the sovereign's external vulnerability was likely to “remain very high” as foreign exchange reserves remain “persistently low”.
Moody’s also forecast that, despite some fiscal consolidation, the Bahraini government’s debt burden was set to rise further amid social and political considerations that were likely to prevent a full implementation of the FBP.
“These credit challenges are set against Bahrain's key credit strength -- its relatively diversified and dynamic economy,” the Moody’s report said.
