RIYADH: Continued fiscal reform efforts, stable economic diversification, and financial support from Gulf Cooperation Council partners have led S&P Global Ratings to affirm Bahrain’s long- and short-term foreign and local currency sovereign credit ratings at “B+/B.”
The American agency also maintained the nation’s transfer and convertibility assessment at “BB-.”
The ratings affirmation reflects Bahrain’s progress in strengthening non-oil revenue, commitment to structural reforms under the Fiscal Balance Program, and ongoing investment in sectors such as manufacturing and tourism.
S&P also pointed to the country’s improved national accounts framework and stable regional alliances as key factors underpinning its sovereign credit profile, as well as emphasizing the importance of Bahrain’s strategic regional alliances in supporting its creditworthiness.
“Our rating on Bahrain reflects supportive relations with GCC sovereigns,” said the report.
These relationships have resulted in significant financial assistance, including a $10.2 billion support package pledged by Saudi Arabia, the UAE, and Kuwait in 2018.
The report noted that in 2024, Saudi Arabia’s Public Investment Fund formalized a $5 billion specialized investment vehicle specifically for Bahrain to “develop tourism, transportation, infrastructure, and the environment.”
The country’s strategy has included non-oil revenue reforms under the government’s Fiscal Balance Program 2018–2024, S&P stated.
These measures include the introduction of a value-added tax in 2019 — doubled to 10 percent in 2022 — a 15 percent domestic minimum top-up tax for multinational enterprises, planned corporate income tax for local companies, and an expanded scope for excise taxes.
Recent revisions to Bahrain’s national accounting methodology have improved fiscal metrics by increasing nominal gross domestic product figures, thereby improving ratios such as debt-to-GDP, S&P explained.
Across the Gulf region, sovereign credit ratings have generally reflected strong fiscal fundamentals and progress on economic reform.
In March, S&P upgraded Saudi Arabia’s long-term rating to “A+” from “A,” citing sustained reforms under Vision 2030. Kuwait’s ratings were affirmed at “A+/A-1” in June, supported by robust fiscal and external positions.
Oman received an upgrade to “BBB-” in September, reflecting fiscal consolidation and a reduction in public debt.
Qatar’s “AA/A-1+” rating was affirmed in November, underpinned by its substantial hydrocarbon reserves.
Against this backdrop, Bahrain’s affirmed rating reflects continued reform but highlights greater fiscal and external vulnerabilities.
Despite these supportive elements, the agency revised Bahrain’s outlook to negative from stable.
“The negative outlook reflects increasing risks to the fiscal position and the government’s ability to service and refinance debt.”
The agency stated that fiscal reform measures “may prove insufficient to put debt to GDP on a downward path,” while noting that “Bahrain’s foreign currency reserve position remains weak.”
S&P projects the fiscal deficit will widen to “about 7.0 percent of GDP in 2025, compared with 5.2 percent in 2024 and 4.9 percent in our previous review.”
The agency attributes this to “lower oil prices and ongoing field maintenance at the key Abu Sa’fah oil field, risks to funding costs amid market volatility, and higher social spending.”
It added that “we recently revised our Brent oil price assumptions down to $65 per barrel in 2025, and $70/bbl over the medium term, relative to about $80/bbl in 2024.”
Looking ahead, S&P anticipates the deficit will tighten, stating: “We anticipate the fiscal deficit will narrow toward 4.4 percent by 2028.”
This is expected to result from “a recovery in oil production as maintenance on the Abu Sa’fah oil field, shared with Saudi Arabia, is completed and non-oil revenue continues to grow.”
However, Bahrain’s rising debt burden remains a concern, according to the report, which said: “High debt levels continue to constrain the government’s fiscal flexibility.”
Gross general government debt is projected to rise from 130 percent of GDP in 2024 to 144 percent by 2028, factoring in 3 percent of GDP in off-balance-sheet spending.
“Over the last three years, debt to GDP has risen by about 18 percentage points after including overdraft facilities from the Central Bank of Bahrain, totaling 24 percent of GDP in 2024,” said S&P, adding that debt-servicing costs have also increased to approximately 29 percent of government revenue, one of the highest levels among sovereigns rated by the agency.
Low foreign currency reserves also weigh on Bahrain’s external profile. “The government’s foreign currency reserve account has historically been restored via external issuance and fiscal support from other GCC sovereigns,” said the report.
Usable reserves are estimated at “about negative $15 billion–$16 billion, after deducting the monetary base and foreign currency swaps with domestic banks, which we regard as encumbered.”
Upcoming external government debt maturities heighten refinancing risks, said S&P, adding that over the next 12 months these will total $3.6 billion, including sukuk and bond payments due between August and May 2026.
“We anticipate Bahrain will seek to refinance these maturities to avoid a significant drop in foreign currency reserves,” said the report.
S&P noted that it “could lower the rating over the next six to 12 months if the government is unable to significantly reduce the pace of government debt accumulation, which has been higher than anticipated in recent years.”
The rating could also come under pressure if there were a deterioration in foreign currency reserves due to weaker market access for funding or if the agency believed additional funding support for the GCC would not be forthcoming.
Conversely, the outlook could be stabilized with meaningful progress on fiscal reforms.
“We would revise the outlook to stable if the government were to implement fiscal reforms to materially increase the revenue base and narrow fiscal deficits, and if we saw improving foreign currency reserves,” said S&P.
