Moody's Investors Service has upgraded Bahrain's foreign currency ceiling for bonds to Baa3/P-3 from Ba1/NP and the ceiling for foreign currency for onshore bank deposits to Baa3/P-3 from Ba2/NP, stated a press release.
Consequently, foreign currency debt issued by the Kingdom of Bahrain would be rated Baa3. The issuer rating for local currency government debt was raised to Baa1 from Baa3. The A3/P-2 rating guideline for offshore foreign currency bank deposits remains unchanged. The outlooks for all the ratings mentioned above are stable.
Moody's said that the upgrade is supported by a consistent track record of healthy macro economic and fiscal performance together with political and social reforms that have accelerated since King Sheikh Hamad Bin Isa Al-Khalifa ascended to the throne in March 1999. Wider political participation and formal forums for debate represented by the Shura Council and the Parliament are important steps towards greater political stability and democratisation.
Prudent fiscal discipline characterized by restraint on current expenditure and improved budget balances along with an effective system of resource allocation towards health, education and infrastructure projects underpin Bahrain's Baa1/P-2 local currency ratings, the agency noted. However, despite the relatively diversified economic base, government revenues remain highly dependent on proceeds from oil.
In 2001, more than 56 percent of revenue came from the Abu Saafa offshore oil field which is located in Saudi Arabia's territorial waters and thus under Saudi Arabia's sovereignty. If altered, the arrangement between Saudi Arabia and Bahrain regarding the Abu Saafa oil field would most likely be changed in Bahrain's favor. Nevertheless, Moody's considers this concentration in the Bahraini government's revenue a weakness.
Moody's noted that Bahrain's favorable debt dynamic further supports its Baa3 rating. The central government's debt amounted to around 30.6 percent of gross domestic product (GDP) at year-end 2001 and its foreign currency component represented 5.5 percent of GDP. Moreover, debt servicing is low and represented on average around four percent of total revenues over the past few years.
Bahrain's banking system, Moody's said, is arguably more advanced and better regulated than those of most of its peers in the region. Bahrain has gradually become the center for Islamic banking and a model for regulating and supervising Islamic and conventional banks. The onshore banks are in good financial health and are unlikely to represent a contingent liability to the state in the foreseeable future. The offshore banks, whose total assets come to more than 11 times the country's GDP, have made Bahrain a regional banking center for project finance, investment banking, and asset management.
Geopolitical risk is a key rating driver and a factor constraining the upward movement of Bahrain's ratings, added Moody's. Taken into account in the rating is the high uncertainty associated with the possible scenarios for the likely US-led attack on Iraq and its potential effects on military and political relations between states in the Gulf region as well as on mass political opinion and behaviour. Moody's said that it would continue to monitor this event risk and assess its impact on Bahrain's ratings. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
