Moody’s Investors Service has changed the outlook on Bahrain to stable from negative and has affirmed its B2 long-term issuer and senior unsecured ratings.

The change of outlook to stable reflects “an easing of downside risks to Bahrain’s ratings.” The ratings agency believes the increase in oil prices since early 2021 will remain elevated for the next few years, improving the outlook for the sovereign’s fiscal and external balances, reducing the rate of government debt accumulation and lowering government liquidity and external vulnerability pressures.

The stable outlook also takes into account the government’s renewed commitment to its medium-term fiscal adjustment program, which “increases the likelihood that additional financial assistance from the neighboring Gulf Cooperation Council (GCC) sovereigns will be forthcoming in a timely manner if and when needed.”

The affirmation of the B2 ratings captures Moody’s view that Bahrain’s debt and debt affordability metrics remain very weak, and its government liquidity and external vulnerability risks high. These credit weaknesses are mitigated by the financial, economic and political support from Saudi Arabia, Kuwait and United Arab Emirates governments.

The rating is also supported by its relatively high income per capita and a relatively well-diversified economy compared to most other GCC sovereigns, which provide a degree of shock absorption and economic resilience, Moody’s said.

The rating affirmation at B2 also applies to the backed senior unsecured foreign currency rating of the drawdowns from the sukuk (trust certificate) issuance program of the CBB International Sukuk Programme, a special purpose vehicle whose debt is in Moody’s view ultimately an obligation of the Government of Bahrain.