Moody’s downgrades Bahrain rating to B1

Bahrain’s government debt burden and debt affordability would deteriorate significantly over the coming two to three years, Moody’s said. (AFP)
Updated 29 July 2017
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Moody’s downgrades Bahrain rating to B1

DUBAI: Moody’s Investors Service downgraded the Bahrain’s long-term issuer rating to B1 from Ba2, and maintained its negative outlook for the country.
“The credit profile of the Bahraini government will continue to weaken materially in the coming years, predominantly because despite some fiscal reform efforts there is a lack of a clear and comprehensive consolidation strategy,” the credit ratings agency said in its rationale for the downgrade.
It also expected that Bahrain’s government debt burden and debt affordability would deteriorate significantly over the coming two to three years.
Moody’s also lowered Bahrain’s long-term foreign-currency bond ceiling to Ba2 from Baa3 and long-term foreign-currency deposit ceiling to B2 from Ba3.
The negative outlook reflects continued downside risks to the rating, which manifest themselves in heightened government and external liquidity risks, Moody’s said on Friday.
The ratings agency also noted that although the Gulf state has benefited from support its neighbors during previous periods of stress, such “support at this
juncture lacks clarity, both in its form and timeliness.”
Moody’s like added that while initial steps have been taken toward fiscal consolidation — including subsidy reforms for fuel and utility tariffs, the streamlining of government entities, increasing taxes, and targeting a cost recovery in the provision of government services — the country still lacks a clear and comprehensive fiscal strategy given difficult timing in introducing it.
As the country manages growing domestic political and social tensions that render difficult the introduction of unpopular fiscal measures, Moody’s said.
Bahrain’s dependence on debt funding to finance its large fiscal deficit, and considering its limited sovereign wealth fund assets it can draw on, Moody’s raised doubts if the country can return to more sustainable government debt levels.
Fiscal deficits would stay in double-digits in 2017 and 2018, and narrow only gradually over the following years, the ratings agency said.
Moody’s also on Friday downgraded Oman’s long-term issuer and senior unsecured bond ratings to Baa2 from Baa1, and changed the outlook to negative from stable, citing the country’s limited progress in addressing vulnerabilities to the weaker oil price environment.
Moody’s expects Oman to be continually reliant on oil for government revenues, at an average of 71 percent over coming the years.


Gulf defense spending ‘to top $110bn by 2023’

Updated 15 February 2019
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Gulf defense spending ‘to top $110bn by 2023’

  • Saudi Arabia and UAE initiatives ‘driving forward industrial defense capabilities’
  • Budgets are increasing as countries pursue modernization of equipment and expansion of their current capabilities

LONDON: Defense spending by Gulf Arab states is expected to rise to more than $110 billion by 2023, driven partly by localized military initiatives by Saudi Arabia and the UAE, a report has found.

Budgets are increasing as countries pursue the modernization of equipment and expansion of their current capabilities, according to a report by analytics firm Jane’s by IHS Markit.

Military expenditure in the Gulf will increase from $82.33 billion in 2013 to an estimated $103.01 billion in 2019, and is forecast to continue trending upward to $110.86 billion in 2023.

“Falling energy revenues between 2014 and 2016 led to some major procurement projects being delayed as governments reigned in budget deficits,” said Charles Forrester, senior defense industry analyst at Jane’s.

“However, defense was generally protected from the worst of the spending cuts due to regional security concerns and budgets are now growing again.”

Major deals in the region have included Eurofighter Typhoon purchases by countries including Saudi Arabia and Kuwait.

Saudi Arabia is also looking to “localize” 50 percent of total government military spending in the Kingdom by 2030, and in 2017 announced the launch of the state-owned military industrial company Saudi Arabia Military Industries.

Forrester said such moves will boost the ability for Gulf countries to start exporting, rather than purely importing defense equipment.

“Within the defense sector, the establishment of Saudi Arabia Military Industries (SAMI) in 2017 and consolidation of the UAE’s defense industrial base through the creation of Emirates Defense Industries Company (EDIC) in 2014 have helped consolidate and drive forward industrial defense capabilities,” he said.

“This has happened as the countries focus on improving the quality of the defense technological work packages they undertake through offset, as well as increasing their ability to begin exporting defense equipment.”

Regional countries are also considering the use of “disruptive technologies” such as artificial intelligence in defense, Forrester said.

Meanwhile, it emerged on Friday that worldwide outlays on weapons and defense rose 1.8 percent to more than $1.67 trillion in 2018.

The US was responsible for almost half that increase, according to “The Military Balance” report released at the Munich Security Conference and quoted by Reuters.

Western powers were concerned about Russia’s upgrades of air bases and air defense systems in Crimea, the report said, but added that “China perhaps represents even more of a challenge, as it introduces yet more advanced military systems and is engaged in a strategy to improve its forces’ ability to operate at distance from the homeland.”