(MENAFN- Capital Intelligence Ltd) 10 October 2025

Rating Action

Capital Intelligence Ratings (CI Ratings or CI) today announced that it has affirmed Bahrain’s Long-Term Foreign Currency Rating (LT FCR) and LT Local Currency Rating (LT LCR) at ‘B+’. At the same time, CI Ratings has affirmed the sovereign’s Short-Term FCR (ST FCR) and ST LCR at ‘B’. The Outlook for the ratings remains Negative.

Rating Drivers

The ratings reflect persistent weaknesses in the public finances, including very high central government debt as well as increasing liquidity risks. The latter is due to the central government’s large gross financing needs and dependence on cross-border funding, which render it vulnerable to shifts in investor sentiment. The ratings also take into consideration Bahrain’s external vulnerabilities, which are exacerbated by the very high external debt and moderate international liquidity buffers.

The ratings are supported by continued – albeit declining – current account surpluses, and the likelihood of further financial support from Saudi Arabia and the GCC in case of need. The ratings are also supported by Bahrain’s high GDP per capita and reasonable level of economic diversification, particularly compared to regional oil exporting peers. The ratings remain constrained by the very high level of government debt and interest expense, limited fiscal flexibility, and the country’s exposure to increasing geopolitical risk. The sovereign’s credit metrics are also heavily influenced by developments in the oil market, with the commodity accounting for an estimated 15% of GDP, 60% of fiscal revenues and 49% of exports in 2024.

Fiscal strength has declined to weak from moderately weak since our last review due to growing central government budget deficits, and insufficient fiscal consolidation and revenue mobilisation efforts. The central government budget deficit is expected to widen to 8.1% of GDP in 2025, from 5.0% in 2024, reflecting increasing expenditures and declining hydrocarbon revenues. CI notes that the increase in non-hydrocarbon revenues as a result of the doubling of the VAT rate to 10.0% has failed to offset the increase in current expenditures. Moving forward, CI projects the central government budget deficit to decline to an average of 5.5% of GDP in 2026-27, with non-hydrocarbon revenues benefiting from the introduction of a 15.0% domestic minimum top-up tax on multinational enterprises in January 2025 and oil revenues buoyed by an expected gradual increase in hydrocarbon production. The government is also considering further measures to improve revenue mobilisation, including the introduction of an environmental tax on companies and a further VAT increase.

Central government debt remains very high and is expected to increase to 135.9% of GDP in 2025, from 128.3% in 2024, reflecting deteriorating debt dynamics, including the return to primary budget deficits. Reliance on external financing remains substantial, with over 60% of central government debt classified as external and mainly USD-denominated. The debt stock includes the outstanding zero-interest loans from the GCC Development Fund (estimated at 16% of GDP in 2024). The domestic portion of the debt stock includes direct government borrowing from the Central Bank of Bahrain, which stood at BHD4.5bn (25.9% of GDP) in August 2025. As of end-2024, about 61% of domestic public debt is held by retail banks operating in Bahrain.

Government interest expense is very high at an estimated 32.3% of revenues in 2025 (28.2% in 2024), limiting fiscal flexibility and rendering the public finances vulnerable to changes in investor sentiment.

Refinancing risks remain high, with gross government financing needs estimated to increase to an average of 24.7% of GDP in 2025-27 (compared to 23.0% in 2024). Liquidity buffers are modest, with government deposits in the banking system equivalent to 11.8% of GDP in May 2025. Access to international capital markets is adequate at present, with the sovereign issuing a cumulative USD5.0bn of debt in May and October 2025. Government external debt maturities appear to be manageable, at an estimated USD1.6bn as of March 2025 and USD2.8bn in 2026, although market access could become more challenging should geopolitical tensions (for example between the US and Iran) intensify.

CI still considers the likelihood of further financial support from the GCC in case of need as a major supporting factor for the ratings. This support could include low-interest loans from sovereign wealth funds, development grants, and investment cooperation programmes. Bahrain has so far benefitted from two support programmes from GCC countries, including USD7.5bn to alleviate near-term financing risks between 2018 and 2024, and USD10.3bn in development project financing from the GCC development fund. As of 31 December 2024, an amount of USD7.4bn of the latter had been committed to 48 GCC Development Fund projects, of which USD5.8bn had been certified as paid.

External strength is moderately weak, reflecting low international liquidity and very high external debt. Gross international reserves increased to USD5.0bn in July 2025, from USD4.6bn in 2024, with the latter covering only 12.3% of M2 and less than 130.0% of short-term external debt on a remaining maturity basis (excluding the foreign liabilities of the wholesale banks). The assets in the Future Generations Reserve Fund (of which 75% are deemed liquid) remain low, although they increased to around USD700mn (1.5% of GDP) in December 2024.

Gross external debt – including the foreign liabilities of the wholesale banking sector – was very high at 492.7% of current account receipts in 2024. Net of these liabilities, external debt was still very high at 196.1% of GDP in 2024.

Notwithstanding the above, the current account recorded a surplus of 4.7% of GDP in 2024 (down from 6.4% in 2023) and is projected to register declining surpluses averaging 1.9% of GDP in 2025-27. This is based on CI’s assumption that a gradual increase in the volume of oil exports and high services receipts will partially offset a decline in hydrocarbon prices from their 2023-24 levels.

Economic growth has started to pick up in 2025, with real GDP expected to increase by 2.8%, compared to 2.6% in 2024. This is attributable to the gradual recovery in hydrocarbon activities, as well as robust growth in the non-hydrocarbon sectors.

Rating Outlook

The Negative Outlook indicates that the ratings are likely to be lowered over the next 12 months. This reflects our expectation that the weaknesses in the public finances will persist in the forecast horizon.

Rating Dynamics: Upside Scenario

Although unlikely, the ratings could be upgraded in the next 12 months if fiscal consolidation measures and higher-than-projected hydrocarbon prices lead to improving fiscal outcomes. The ratings could also be upgraded if government debt dynamics are reversed, resulting in a significant decline in debt ratios and greater fiscal flexibility.

Rating Dynamics: Downside Scenario

The ratings could be lowered by more than one notch in the next 12 months should sovereign credit risk increase further than projected in the baseline scenario due to a pronounced deterioration in the public finances and higher-than-projected debt. The ratings could also be lowered by more than one notch if there is a significant increase in refinancing risks due to higher-than-projected risk perceptions in global markets, leading to limited capacity to raise funds and/or a significant increase in regional tensions, jeopardising the sovereign’s macroeconomic stability and hydrocarbon exports.

Contact

Primary Analyst: Dina Ennab, Sovereign Analyst; E-mail: ...
Committee Chairperson: Morris Helal, Senior Credit Analyst

About the Ratings

The credit ratings have been issued by Capital Intelligence Ratings Ltd, P.O. Box 53585, Limassol 3303, Cyprus.

The ratings, rating outlook and accompanying analysis are based on public information. This may include information obtained from one or more of the following sources: national statistical agencies, central banks, government departments or agencies, government policy documents and statements, issuer bond documentation, supranational institutions, and international financial institutions. CI considers the quality of information available on the rated entity to be satisfactory for the purposes of assigning and maintaining credit ratings, but does not audit or independently verify information published by national authorities and other official sector institutions.

The principal methodology used to determine the ratings is the Sovereign Rating Methodology dated September 2018. For the methodology and our definition of default, see Information on rating scales and definitions and the time horizon of rating outlooks can be found at Historical performance data, including default rates, are available from a central repository established by ESMA (CEREP) at

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Unsolicited Credit Rating

With Rated Entity or Related Third Party Participation: No
With Access to Internal Documents: No
With Access to Management: No

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