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Fitch downgrades Bahrain over high deficits

Fitch Ratings on March 1 downgraded Bahrain's long-term foreign- and local-currency issuer default ratings to BB- from BB+, with a stable outlook.

Bahrain's government debt ratio climbed to 81.5% of GDP in 2017 from 73.3% in 2016. Fitch said the government's efforts to raise revenue and cut spending failed to stabilize government debt-to-GDP ratio, which is expected to rise above 90% in 2019 and surpass 100% in the medium term.

"Debt as a percentage of government revenue is expected to rise to 540% in 2019, one of the highest among Fitch-rated sovereigns," the rating agency said.

The government's ability to reduce deficit through social and economic reforms is undermined by the lack of commitment from other key stakeholders and the country's traditionally low taxation and generous benefits. It has not developed a clear medium-term strategy to control high deficits because of the political environment, embedded social expectations and a lack of experience with taxation, leading to uncertainty around the fiscal outlook, the rating agency said.

The country's preliminary 2017 budget deficit narrowed to 11.6% of GDP from 16.0% in 2016, thanks to higher oil prices, an increase in non-oil revenue and a decline in overall spending. Fitch said budget deficit is expected to narrow to around 9% of GDP in 2019, but that would still be more than double the projected BB rating median.

Bahrain's real GDP growth is expected to be 3.3% in 2017 and slow to 3.1% in 2018 and 2019, Fitch said.