Standard & Poor’s Ratings Services said on Tuesday that ongoing political tensions in Bahrain and Oman remain a “significant issue” for the credit standing of both sovereigns.
But the Gulf Cooperation Council’s (GCC’s) March 10 announcement of a $20bn economic aid support package over ten years, to be shared equally between the two governments could boost long-term growth, the rating agency said in a report.
“We are of the view that the economic aid package, which we understand will be comprised of donations by GCC members, will not immediately affect Bahrain’s and Oman’s ratings or ratings outlooks. That said, we believe the package could contribute positively to the sovereigns’ creditworthiness over the medium to longer term,” the report added.
S&P said the aid package could be significant as Bahrain’s share amounts to about two-fifths of its GDP and Oman’s portion equates to about one-sixth of its GDP.
The report added: “we understand that the funds are primarily aimed at infrastructure and housing over a ten-year horizon. In our opinion, the package should give both sovereigns the fiscal flexibility to increase infrastructure spending and will implicitly address youth unemployment.”
However S&P questioned how quickly local youths would take up new employment opportunities and if they do not, will the jobs be filled by foreign contractors, as has happened in the past.
“Depending how, and on what, the funds are spent, new infrastructure could also bolster Bahrain’s and Oman’s growth potential in the longer term, and could help diversify both economies away from their currently-still-strong dependence on oil.
S&P’s ratings on Bahrain have been lowered by an aggregate three notches since the onset of political tensions, and both sovereigns remain on CreditWatch with negative implications, indicating the possibility that the ratings will be lowered if political tensions continue.