S&P Global Ratings revised Bahrain’s outlook from stable to negative as the Gulf country undertakes tax reforms to strengthen its economy. Rising oil prices along with support from other GCC members are also expected to help the country improve its fiscal position.
The rating agency confirmed Bahrain’s long and short-term sovereign credit ratings in foreign and local currencies, it said in a statement.
“The stable outlook indicates that we expect the government to implement measures to reduce the budget deficit and receive support from other GCC rulers if needed, in addition to the direct budget support already pledged,” said on Saturday. S&P.
Bahrain last month rolled out an economic plan that aims to invest nearly $ 30 billion in strategic projects to fuel post-coronavirus growth, boost jobs for citizens and attract foreign investment.
The government has also adopted cost-rationalization measures, including an increase in VAT to 10% to help the kingdom balance its budget by 2024.
It aims to create more than 20,000 jobs for citizens per year through 2024 and to train 10,000 more through its Tamkeen program, according to Bahrain’s state news agency. The government also unveiled details of an initiative that aims to attract $ 2.5 billion in foreign direct investment by 2023.
“We predict that the increase in VAT (from January 1 next year) could contribute revenues of around 3% of GDP in the medium term, up from around 1.7% in 2021,” said the rating agency.
The government also plans to increase non-oil revenue from 2023 by increasing fees and other measures that will support the economy, S&P said.
The country, the smallest of six members of the GCC economic bloc, is expected to grow 3.3% this year after declining 5.4% last year due to the coronavirus pandemic, according to the International Monetary Fund.
The rise in oil prices should also help the country to increase its income in the short term. Brent, the global benchmark, has risen more than 40% since the start of the year, to $ 72.72 per barrel on Friday.
âThe recent increase in oil prices has reduced external and monetary pressure. The current account in the first half of 2021 posted a surplus of 1% of GDP, âS&P said.
The rating agency expects Bahrain to receive full disbursements under the $ 10 billion budget support program extended by Saudi Arabia, the United Arab Emirates and Kuwait in 2018, with the possibility of additional financial support.
Bahrain received $ 6.3 billion over a two-year period from 2018 to 2020, while total disbursements this year are expected to be $ 1.85 billion. It is also expected to receive $ 1.42 billion in 2022 and $ 650 million in 2023.
“The government’s vaccination campaign was successful and King Fahd’s Causeway to Saudi Arabia reopened in May, giving further impetus to economic growth,” S&P said.
“Projects funded by the $ 7.5 billion GCC Development Fund, provided in 2011, which is separate from the $ 10 billion GCC support program, will continue to support investments over the forecast period. . “
Update: November 27, 2021 11:43 am