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MANAMA: Additional fiscal reforms that strengthen Bahrain’s non-oil revenue and rationalise expenditure, coupled along with the more supportive oil price environment, have prompted S&P Global Ratings to revise its outlook on Bahrain to stable from negative.
The US-based ratings agency has also affirmed its ‘B+/B’ ratings on the sovereign and said that the stable outlook balances an improving fiscal position and support from some GCC countries against high government debt and debt-service burden.
“The stable outlook indicates we expect the government to implement measures to reduce the budget deficit and benefit from support from other GCC sovereigns if needed, in addition to the direct fiscal support already pledged,” it said.
The agency expects Bahrain’s accumulation of debt to moderate, supported by recently announced measures that provide more clarity with regard to its medium-term fiscal consolidation programme.
The government has updated and extended its Fiscal Balance Plan, changing the target date for a balanced budget to 2024 from 2022.
Bahrain has also announced that the value-added tax (VAT) rate will double to 10 per cent starting 2022, strengthening non-oil revenue.
S&P expects the increase in VAT could contribute receipts of about 3pc of GDP over the medium term, up from about 1.7pc in 2021.
Beginning in 2023, the government aims to further increase non-oil revenue by increasing fees and budget contributions from government-related entities and adding charges to government services.
On the expenditure side, although there are no major initiatives planned for 2022, the government plans to significantly reduce spending by rationalising government operating expenditure (opex), reducing manpower expense, rationalising social subsidies, and cutting capital expenditure (capex) over 2023-2024, it added.
This is in contrast to the previous plan, where the onus of fiscal consolidation was on raising non-oil revenue, after expenditure-reducing measures in 2019.
According to S&P, the recently announced measures represent a positive shift to a more balanced fiscal consolidation plan.
It expects Bahrain will receive full disbursements under the $10 billion GCC fiscal support package and the potential for additional financial support remains.
Bahrain received $6.3bn over 2018-2020 and full disbursements of $1.85bn are expected this year.
Thereafter, the disbursements decrease to $1.42bn in 2022, and $650 million in 2023.
The recent increase in oil prices have reduced external and monetary pressure, with Bahrain’s current account in the first half of 2021 posting a surplus of 1pc of GDP.
The agency expects oil to average $75 a barrel for the remainder of 2021 and $65 a barrel in 2022.
avinash@gdn.com.bh
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