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Bahrain is proactively addressing the evolving global economic landscape through a combination of strategic fiscal reforms and the enduring strength of its alliances within the GCC, according to a recent assessment by S&P Global.
While the global ratings agency revised Bahrain’s outlook to “negative” from “stable” on Wednesday, it affirmed the kingdom’s “B+/B” long- and short-term foreign currency sovereign credit ratings, signalling underlying confidence in its ability to manage financial obligations.
The revised outlook acknowledges the temporary influence of factors such as moderated oil prices and ongoing maintenance at the key Abu Sa’fah oil field, alongside broader market volatility. However, this occurs against a backdrop of Bahrain’s determined efforts to diversify its revenue base beyond hydrocarbons.
According to the ratings agency, initiatives underway include the introduction of a corporate income tax for local companies, the expansion of excise taxes, and the recent adoption of a 15 per cent domestic minimum top-up tax for multinational enterprises – all aimed at bolstering long-term fiscal sustainability. Plans for a gradual reduction in subsidies through direct cash transfers further underscore a commitment to efficient resource management.
Bahrain’s economic performance in 2024 demonstrated the increasing resilience of its non-oil sectors, which experienced a robust 3.6pc growth in areas such as manufacturing, tourism, transportation, and hospitality, effectively offsetting a temporary contraction in the oil sector.
With oil production poised for recovery following the completion of field maintenance, these non-oil sectors are expected to remain crucial drivers of the kingdom’s continued economic diversification, it added.
A cornerstone of Bahrain’s economic stability remains the unwavering support from its GCC partners. The substantial $10.2 billion aid package extended in 2018 by Saudi Arabia, Kuwait, and the UAE underscores the strong regional commitment to Bahrain’s financial well-being.
This collaborative framework is further reinforced by Saudi Arabia’s recent establishment of a $5bn specialised investment vehicle targeting key sectors like tourism and infrastructure, along with ongoing investments from the UAE and various public-private partnerships.
While acknowledging the projected widening of the fiscal deficit in 2025, S&P’s affirmation of the kingdom’s credit ratings reflects a recognition of the kingdom’s proactive approach to fiscal management.
This includes the successful implementation and subsequent doubling of the value-added tax. Moreover, the potential for strategic liability management exercises indicates a forward-looking approach to optimising debt-servicing costs.
In conclusion, while navigating a dynamic global economic environment, Bahrain’s strategic fiscal measures, the demonstrated resilience of its diversifying non-oil economy, and the consistent and substantial support from its GCC allies position the kingdom to effectively address its financial landscape and maintain a trajectory of stable and sustainable economic development.
avinash@gdnmedia.bh
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