Bahrain's outlook cut to negative by Fitch amid rising debt
RIYADH: Bahrain's economic outlook has been downgraded to negative from stable by Fitch Ratings, which affirmed the country's B+ rating due to mounting fiscal pressures, high debt levels, and delayed economic reforms.
This makes Bahrain the only Gulf Cooperation Council nation with this rating and a negative outlook from the agency.
Fitch highlighted Bahrain's persistent fiscal deficits and escalating interest burdens as primary concerns. Government debt is projected to rise from 130 percent of GDP in 2024 to 136 percent by 2026, significantly surpassing the 54 percent median for sovereigns in the B rating category.
'The 'B+' rating reflects weak public finances, with debt to gross domestic product ratio more than double the 'B' category median, high fiscal dependence on oil revenue, low levels of FX reserves, which weigh on the ratings, but exceptionally strong support from its GCC partners, notably Saudi Arabia and the UAE,' Fitch said.
The nation's budget deficit is expected to remain substantial, nearing 9 percent of GDP in both 2025 and 2026, despite some improvements in the non-oil sector.
While Bahrain continues to rely heavily on hydrocarbon revenues, Fitch expects oil-related income to remain stable, supported by increased refinery output at Bapco Energies.
However, with oil prices forecasted to decline — from $80 per barrel in 2024 to $70 in 2025 and $65 in 2026 — non-oil revenue is becoming increasingly crucial. 'The improvement will mostly be propelled by the tax on multinational companies introduced in January 2025,' said the report.
DMTT collection will begin in the third quarter of 2025 and could generate about 0.6 percent of GDP in revenue on a full-year basis, according to the agency. 'Our base case does not include the introduction of corporate income tax or a rise in VAT during this budget cycle,' it added.
Budget discussions for 2025 and 2026 are ongoing between Bahrain's government and parliament. In the interim, spending is capped at one-twelfth of the 2024 budget per month, excluding inflation adjustments.
Fitch anticipates the adoption of a new budget by mid-2025, with potential savings from subsidy reforms transitioning to a means-tested cash transfer system.
Despite Bahrain's fiscal weaknesses, strong financial backing from GCC nations — particularly Saudi Arabia and the UAE — remains a stabilizing factor.
The agency noted that Bahrain benefits from low-cost funding via GCC-related entities, private placements, and international debt markets. 'In Fitch's view, absent strong reforms, Bahrain could require a substantial increase in GCC concessional funding to stabilize and reduce debt. Our base case is that Bahrain would be able to obtain this funding from GCC partners,' said the report.
Bahrain's foreign exchange reserves remain low, at approximately $4.8 billion in 2024, covering just 1.3 months of current account outflows — far below the 'B' category median of 4.5 months. The country remains dependent on external funding and market access to maintain its currency peg and financial stability.
Fitch outlined key factors that could lead to a downgrade, including a failure to stabilize the debt-to-GDP ratio or a reduction in GCC financial support. Conversely, the outlook could return to stable if Bahrain demonstrates meaningful fiscal consolidation and stabilizes government debt.
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