Tags: Fitch | Cuts | Bahrain | Rating | Amid | Instability

Fitch Cuts Bahrain's Rating Amid Instability

Thursday, 03 Mar 2011 11:10 AM

Fitch Ratings cut its foreign currency sovereign credit rating on Bahrain one notch to A-minus from A Thursday, citing the likelihood of an extended political dialogue between disgruntled Shi'ite Muslims and the ruling Sunni government.

The outlook for the rating is negative, Fitch said.

"The downgrade reflects Fitch's view that recent political developments will have a short-term impact on growth and result in further fiscal expansion over the medium-term," Fitch sovereign analyst Purvi Harlalka said in a statement.

"The negative outlook reflects the economic and political uncertainties associated with a drawn-out political process, which increase the risks to the sovereign's credit profile,"

Bahrain is already rated A-minus by Standard & Poor's while Moody's Investors Service has an equal rating of A3.

Mass protests by Bahrainis, mainly from the majority Shi'ite community, have shaken the stability of the Gulf Arab kingdom that is home to the U.S. Fifth Fleet, since uprisings toppled veteran rulers in Tunisia and Egypt.

Fitch highlighted a weakening fiscal outlook in Bahrain where debt has doubled to 33 percent of gross domestic product in 2010 from 16.4 percent in 2008.

"However, even at these elevated levels, debt will remain below the forecast 'A' median and Bahrain has a demonstrated track record of fiscal prudence," Fitch said.

Rising prices for oil and gas, a result of the political tensions in the Middle East and North Africa, will take some of the pressure off of the budget, Fitch said.

The ongoing fighting in Libya between opposition forces and those loyal to Muammar Gaddafi, the nation's ruler for 41 years, has cut oil production roughly in half, industry analysts say.

In Bahrain, at least seven people have been killed and hundreds wounded in protests since a "Day of Rage" on Feb. 14 to demand more say in the country. the Shi'ites complain of repression by the Sunni ruling elite.

Earlier on Thursday the opposition groups said they were now ready to enter into talks with the government without pre-conditions, but have sent a letter to the crown prince saying they want a new government and constitution.

The Sunni al-Khalifa family rules 1.2 million people, about half of them foreigners.

Political tensions reduce the flexibility of the government to deal any shocks in an uncertain environment given a high dependence on a limited hydro-carbon endowment, Fitch said.

Uncertainty over the next 12 months is countered by Fitch's more optimistic medium-term view for political reform.

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Fitch Ratings cut its foreign currency sovereign credit rating on Bahrain one notch to A-minus from A Thursday, citing the likelihood of an extended political dialogue between disgruntled Shi'ite Muslims and the ruling Sunni government. The outlook for the rating is...
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2011-10-03
Thursday, 03 Mar 2011 11:10 AM
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