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Bahrain not in a good place financially, as debt soars

The government of Bahrain’s slow fiscal response to past declines inT oil prices has led to a large and growing stock of government debt, and gross international reserves are low and volatile, according to Standard & Poor’s (S&P) in a report today.

“Government access to international capital markets has proven crucial for replenishing reserves, and we expect financial support for Bahrain’s exchange rate arrangement from neighboring sovereigns would be forthcoming, if needed,” said S&P.

“As a result, we are affirming our ‘B+/B’ ratings on Bahrain with the outlook is stable.”

Stable, but dire straits ahead.

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Risky to investors

S&P said the stable outlook reflects the balance between the risk that the central bank would be unable to meet a surge in demand for foreign currency over the next 12 months and potential financial support from neighboring sovereigns.

Earlier in May, Reuters reported that the cost of insuring Bahrain’s sovereign debt against default has jumped to near multi-year highs that week of the 23rd because of concern the country will lose access to international capital markets, quoting bankers and debt traders.

Bahrain, it said, has a 23% chance of default in the next five years, even as oil being now around $80, but not easing worries about Bahrain.

“The International Monetary Fund estimates its budget deficit at 11.6% of GDP this year and predicts its debt will exceed 100% of GDP in 2019.

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Bahrain’s debt was rated by Fitch Ratings in March as BB-minus, three notches into junk territory.

“Precipitously declining foreign reserves, large fiscal imbalances,‎ a double-notch sovereign rating downgrade by Fitch‎, on top of their being no coherent strategy for setting the country on a more sustainable path, have all given impetus to rising risks in Bahrain,” reported Reuters. Quoting banking experts.

“In March, the government paid a big premium to sell $1 billion of Islamic bonds abroad, causing yields on its existing debt to spike.”

Zeina Rizk, director of fixed income asset management at Dubai’s Arqaam Capital, told Reuters that Bahrain could count on financial aid if needed from Saudi Arabia.

The central bank’s net foreign assets hit a seven-month low of $1.41 billion in March, about 31 days’ worth of imports.

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