Bahrain Reacts to Downgrade

The recent political unrest in Bahrain led Moody’s Investors Service to downgrade their sovereign debt on fears about the country’s domestic problems.

Bahrain central bank governor Rasheed Mohammed Al Maraj told CNBC, “I think the credit rating agencies took a hasty decision in terms of basing their decision on the political situation.” Al Maraj explained, “The economic fundamentals of Bahrain have not changed, as a matter of fact the public finance of Bahrain has slightly improved as a result of higher oil prices…Investors need to distinguish between the countries in the Middle East, as their dynamics are different.” He added that Bahrain had not experienced any negative impact from the region’s situation.

Unlike its neighbors, Bahrain does not have significant oil wealth and is not a member of OPEC. However, Bahrain has emerged as a Middle East banking capitol. This also causes Moody’s concern. Total bank assets are about 11 times Bahrain’s national income. Moody’s notes that, “potential liabilities stemming from the banking sector in a systemic crisis could…present a significant challenge to the authorities.”

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