(RTTNews) - Tuesday, Moody’s Investor Service lowered Bahrain’s sovereign rating outlook to negative from stable.

These ratings are respectively, the country’s A2 local and foreign currency government bond ratings, the A2 country ceiling for foreign currency bank deposits and the Aa3 country ceiling for foreign currency bonds. The rating agency kept Bahrain’s country ceiling for local currency bank deposits and country ceiling for local currency bonds at Aa2.

The firm said the change was prompted by the steep decline in oil prices well below Bahrain’s fiscal break even level, because, the country has more limited reserves of liquid financial assets that can be tapped to finance fiscal deficits and ease adjustment, compared to similarly rated oil exporters. Moreover, the country may not have the resilience to absorb the price shock and avoid impairment to its credit fundamentals relative to global rating peers, Moody’s said.

The firm also noted that Bahrain’s fiscal and external current accounts remain heavily dependent on oil export receipts, despite some progress being made for diversification. According to an IMF report, Bahrain’s fiscal break even oil price is around US$75 per barrel, compared with a current oil price of around US$45 per barrel, with the fiscal break even being higher than most other oil exports rated by Moody’s including the low rated countries of Russia, Kazakhstan and Trinidad and Tobago.

Moody’s Vice President and Senior Analyst Tristan Cooper said “The government’s ability to cut expenditure in response to the decline in its revenues has been partially compromised by large increases in current spending in recent years”. The firm expects the headline credit metrics of oil exporters to be stronger than those of non-oil exporters at a similar rating level because of the pronounced volatility of their economic performance.

Moody’s said the global economic crisis was likely to have a large impact on the non-hydrocarbon sectors too, as the country tended to focus on those sectors which are not resilient to cyclical fluctuations in external demand, like the tourism and financial services sectors.

Meanwhile, the firm said Bahrain’s country ceiling for local currency bank deposits remained unchanged, as the effects of the global crisis to the retail banking system was contained. However, the firm did express some concerns over the capacity of the authorities to support the country’s large banking sector in the event of a systemic crisis.

The last rating action on Bahrain was implemented on 24 July 2007, when Moody’s upgraded Bahrain’s government bond ratings to A2 from A3 based on the government’s then booming oil revenues.

For comments and feedback: contact editorial@rttnews.com

Copyright(c) 2009 RealTimeTraders.com, Inc. All Rights Reserved

Posted in Categories: Economy, Releases, USA.

Subscribe by RSS Subscribe by Email