Fitch downgrades Bahrain's credit rating due to debt concerns

2026-02-24 08:34:26

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Investing.com - Fitch Ratings downgraded Bahrain’s long-term foreign currency issuer default rating from “B+” to “B” on Monday, citing the expectation that, despite ongoing fiscal consolidation measures, the government debt-to-GDP ratio will remain very high and continue to rise. The outlook is stable.

The rating agency estimates that by the end of 2025, Bahrain’s government debt will reach 146.8% of GDP, the second highest among all Fitch-rated sovereigns, well above the median of 53.4% for “B” rated countries. By the end of 2027, debt is expected to rise to 153.3%, though the pace of increase will slow due to the implementation of consolidation measures. Fitch expects the budget deficit to narrow from an estimated 13.4% of GDP in 2025 to 9.2% in 2027.

Bahrain launched a comprehensive fiscal reform plan in December 2025, including raising fuel and energy prices, utility rates, and government service fees, as well as increasing dividends from government-related entities. The government plans to introduce corporate income tax in 2027. Fitch considers the government’s reform forecasts credible, expecting that increased oil production and improved non-oil revenues will support deficit reduction.

The rating is supported by strong fiscal backing from Gulf Cooperation Council (GCC) partner countries through low-interest loans, capital expenditure grants, and investment programs. Fitch expects that favorable financing from GCC partners will increase as Bahrain’s fiscal reforms progress. The agency also forecasts that, driven by the expansion of the Bapco refinery exports, Bahrain’s current account surplus will average 4.9% of GDP in 2026 and 2027.

As of the end of 2025, Bahrain’s central bank’s international reserves were equivalent to 1.3 months of current external payments, below the “B” median of 4.5 months. GDP growth is projected to rise from 3.1% in 2025 to 3.3% in 2026, supported by the completion of the Bapco refinery project, which will increase capacity from 267,000 barrels per day to 380,000 barrels per day.

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