RISK ANALYSIS
Risk Analysis
August 2010
The economy
In January last year, Bahrain became the first of the six Gulf Co-operation Council (GCC) nations to see its sovereign ratings outlook cut when the credit crunch hit the Gulf, leading to concerns about its ability to handle the global downturn. Late last year Moody’s announced that it was reviewing high-profile banks BBK and NBB for possible downgrade. The first country in the region to discover oil, Bahrain now has the lowest reserves in the Gulf and the majority of its oil revenues come from its share in the offshore Abu Saafa field administered by Saudi Arabia. Despite strong efforts to diversify the economy, oil still accounts for more than 80 per cent of government income. Government expenditure will be hard to curtail as public funds are used to paper over shortfalls in private investment. Though not as hard-hit as Dubai the banking sector has wobbled in recent months. In July last year the central bank seized two lenders connected to troubled Saudi family conglomerates Saad Group and Ahmad Hamad Algosaibi and Brothers (AHAB). The IMF has recommended that Bahrain phase out subsidies on fuel and electricity and hasten the introduction of a retail sales tax. Financial services contribute about 25 per cent of gross domestic product. On 1 August 2009, Bahrain became the first country in the Gulf to end its sponsorship system, giving expatriates greater freedom in the labour market.
Politics
Bahrain has seen a fitful pace of political reform since 2002, when the country’s first parliamentary elections took place. Forty elected members sit in the lower house, with an equal number sitting in the Shoura – or upper house – appointed by King Hamad bin Isa al Khalifa. The lower house has been dominated by Islamist groups since elections in 2006. High unemployment, particularly among the majority Shia population, is one challenge facing authorities, and there have been intermittent clashes between protestors and police. The country’s Economic Development Board (EDB), chaired by Crown Prince Salman bin Hamad al Khalifa, is charged with diversifying the economy further and providing new job opportunities. Though notably poorer than its neighbours, Bahrain has the most liberal business environment.
Sovereign ratings
Standard & Poor’s A Stable
Moody’s A2 Outlook downgraded to negative (9 Jan, 2009)
Fitch Ratings A Stable
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