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S&P downgrades Bahrain on declining forex reserves

S&P Global Ratings on Dec. 9 downgraded Bahrain's long-term foreign- and local-currency sovereign credit ratings to BB- from BB.

The long-term foreign-currency issuer credit ratings on the Central Bank of Bahrain were also downgraded to BB- from BB. The short-term foreign- and local-currency sovereign credit ratings were affirmed at B for both entities, and the outlooks on both were maintained at stable.

The downgrades reflect a reduction in the country's foreign exchange reserves to an expected $2.2 billion at year-end 2016 from $6.2 billion at the end of 2014 and S&P's expectation that current account payment coverage will drop from 1.6 months, or 37% of the monetary base, at 2016-end to below one month by 2018. The decline is a particular worry given Bahrain's dollar currency peg, S&P noted.

Bahrain's external finances have deteriorated more than previously reported, according to recent data cited by the agency. The current account deficit for 2015 was revised upward, and Bahrain's net external creditor position is shrinking, S&P added.

Nevertheless, the agency continues to expect that neighboring Saudi Arabia would step in to support Bahrain should confidence in the latter's currency peg begin to wane, helping to underpin the stable outlook on the country.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.