Bahrain has taken another economic hit with yet another downgrade by the one of the major credit ratings agencies announced on June 28. The country is sinking into a self-harming cycle of political repression leading to ever deeper economic woes, and there seems to be no impetus for a change of course among the leaders in the capital Manama.
The latest downgrade came from Fitch Ratings which cut the country’s rating from BBB- to BB+, in the process taking it into junk status. That mean all three big ratings agencies now place Bahrain in the junk, or non-investment grade, category. Moody’s had downgraded the country to Ba1 in March and then to Ba2 in May. Standard & Poor’s downgraded it to BB in February.
Meanwhile, the political repression continues unabated. The Bahrain Centre for Human Rights (BCHR) says its president Nabeel Rajab is due to be put on trial on July 12, apparently for posting critical messages on Twitter, in a case which could lead to a 13-year jail term. He is currently being detained at West Riffa police station in solitary confinement in “extremely poor conditions” according to the BCHR.
In recent weeks, the authorities have closed down the main opposition party Al Wefaq, revoked the citizenship of its leading scholar Sheikh Isa Qassim, and effectively forced other human rights activists such as Zainab Al-Khawaja out of the country.
“Bahrain is trying to smash the opposition once and for all,” says the Bahrain Justice & Development Movement. “We believe this is a product of a failing economy, from an ever desperate government, that has sidelined all moderates. The hardliners are firmly in control and enacting a specific plan to try to shut down any and all critical voices. Yet if they wish to bring about an improved economy and stability, this is the worst possible tactic that can be used.”
In the rather drier words of financial institutions, Moody’s says the crackdown is “credit negative”. In a report issued earlier this month it said “social stability considerations are likely to limit the prospects for more far-reaching fiscal reforms” and noted that government finances have deteriorated sharply since 2009. The oil price shock since mid-2014 has only aggravated that.
Fitch has taken a similar line in its latest downgrade. It expects general government debt to rise to nearly 80% of GDP this year and predicts debt servicing will take up 41% of revenue in 2016 and 55% in 2017, compared to 30% in 2015. Interest payments will be around 20% of budget revenues in 2016-2018.
All the downgrades the country is suffering only make the fiscal situation worse, as they lead to higher borrowing costs.
Although the government has taken some measures to try and cut its budget deficit, these have not gone nearly far enough. “There is progress in fiscal consolidation, but not a clear path towards reaching a more sustainable position,” says Fitch. “Social pressures and the lack of a sustainable political solution hamper implementation of the fiscal reforms necessary to tackle the worsening debt trajectory.”
The authorities have been trying to do something to bolster the economy. Earlier this month a $100m liquidity fund was set up to improve trading on the local stock market, the Bahrain Bourse. The fund is managed by the local Securities & Investment Company and includes funding from four prominent local backers, including National Bank of Bahrain, Bank of Bahrain and Kuwait, sovereign wealth fund Mumtalakat and Osool, the investment arm of the Social Insurance Organization and the Military Pension Fund.
But such measures feel like putting a small plaster on a large, gaping wound. The market has been on a steep decline since March last year, losing around a quarter of its value in that time. As yet, there doesn’t seem to be any momentum for that to change. Indeed, there is little prospect for improvement anywhere in Bahrain while the economic and political conditions continue as they are.
