PARIS: Fitch Ratings agency dropped Bahrain's debt rating one notch to 'A-' Thursday, saying recent political developments will likely lead to further fiscal expansion and dampen growth in the short term.
"The downgrade reflects Fitch's view that recent political developments will have a short-term impact on growth and result in further fiscal expansion over the medium term," said Purvi Harlalka, director in Fitch's Middle East and Africa Sovereign Ratings Group.
"It also reflects Fitch's judgement that despite the regime's attempts to engage stakeholders in an inclusive national dialogue, any political reform that will appease the protestors is likely to be over an extended horizon," Harlalka added in a statement.
Protests rocking the tiny Gulf kingdom for nearly three weeks have brought to the surface simmering discontent among Bahrain's Shiites, who are calling for the fall of the Sunni Al-Khalifa dynasty which has ruled the majority Shiite country for 200 years.
Fitch lowered its long-term foreign currency issuer default rating (IDR) for Bahrain to 'A-' from 'A' with the outlook negative.
"The negative outlook reflects the economic and political uncertainties associated with a drawn-out political process, which increase the risks to the sovereign's credit profile," said Harlalka.
Fitch noted that the rapid doubling of debt to 33 percent of gross domestic product in 2010 from 16.4 percent in 2008, but said given increasing oil prices and rising oil production the budgetary expansion is more affordable.
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