S&P: Bahrain, Oman Economic Performance Expected to Improve as Oil Surges

With oil revenue projected to rise amid strengthening crude prices, S&P Global Ratings expects Bahrain and Oman to improve their economic performance as the GCC nations continue with their fiscal reforms. 

The global rating agency revised Bahrain’s outlook to positive from stable on expectations that solid growth in non-oil earnings and budget consolidation measures will help ease pressure on the country’s fiscal position.  

S&P said it expects Bahrain's government to continue pursuing reforms to reduce fiscal deficits that will place debt to the gross domestic product on a more sustainable path. 

“We also assume the country's external vulnerabilities will decline amid current account surpluses over 2022-2024. We, therefore, revised our outlook on Bahrain to positive from stable and affirmed our 'B+/B' ratings,” said S&P in its report released on Nov. 25. 

The rating agency kept its transfer and convertibility assessment on Bahrain unchanged at 'BB-'.  

“The positive outlook indicates that we expect the government will continue implementing fiscal reforms to reduce the budget deficit and benefit from additional support from other GCC sovereigns, if needed,” it said. 

As Bahrain looks at strong economic performance, with its GDP registering the fastest growth over a decade, it is positively impacting the Kingdom’s various sectors including real estate.   

This comes as the real estate transaction volumes in Bahrain improved in the third quarter of 2022, reaching a total of 5,482, according to American commercial real estate consultancy CBRE. 

The August month alone saw over 2,400 transactions, making it Bahrain’s second most successful month since 2018. The country’s newer and landmark office buildings hit their highest occupancy levels in the third quarter as occupiers continued with the flight to quality.  

Oman outlook stable  

Meanwhile, Oman’s outlook remains stable as S&P expects the government's fiscal reform program and favorable prices for key export oil will strengthen the country’s fiscal and external metrics. 

“We expect a significant improvement in the economy's external balance sheet this year and for the government to return to a small net asset position in 2023. We, therefore, raised our long-term sovereign credit ratings on Oman to 'BB' from 'BB-',” said S&P, adding that the outlook stays stable.  

The rating agency also revised its transfer and convertibility assessment to 'BB+' from 'BB' and affirmed its 'B' short-term sovereign credit rating on Oman. 

Higher oil prices coupled with the government's recent reforms have helped Oman better manage its fiscal and external positions. In addition to rebuilding fiscal buffers on the back of windfall oil revenue, S&P said the Omani government has continued to reduce the budget's reliance on oil receipts, in line with its medium-term fiscal plan to 2025.  

“We expect fiscal reforms to continue, including the possible introduction of personal income tax on high earners and measures to increase value-added tax receipts,” it noted in the report.