Fitch Ratings said its decision to put Bahrain’s A rating on notice for a downgrade was due to the growing unrest.

It said a substantial worsening in the security situation would prompt the downgrade but that a restoration of order that looks like it may last would lessen the pressure for the agency to act.

“The Rating Watch Negative reflects the intensification of unrest, which together with the growing divide between protesters’ demands and the government’s position on political reform suggests that the protests will be extended,” said Purvi Harlalka, director of Fitch’s Middle East and Africa division.

“The unrest has created economic and political uncertainties, which increase the risks to the sovereign’s credit profile.”

Fitch said the protests had already had an impact after the government’s recent announcement that it was handing out benefits that totaled around two percent of Bahrain’s national income, and that the longer they carry on the greater the risks they pose to the economy and the public finances.

One of the measures announced was directed at increased investment in public housing, addressing a key area of reform demanded by the protesters.

Fitch said the worry lies in the fact that the recently announced measures have come on top of an already expansionary budget that would see gross debt more than double to 38 percent of Bahrain’s gross domestic product by 2012 from just 16 percent in 2008.

Though Fitch did note that Bahrain has a “demonstrated track record of fiscal prudence” and that the current level of oil prices make the new measures more affordable, it said the increase in debt is weakening the kingdom’s credit-worthiness.

Fitch said it would monitor political developments and their economic impact and aims to make a decision on Bahrain’s rating within the usual three- to six-month time horizon.