Fitch Ratings has downgraded Bahrain's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'B+' from 'BB-' in light of the impact of lower oil prices and the coronavirus pandemic.
Bahrain's outlook is stable, Fitch Ratings said in a statement on Friday.
The COVID-19 pandemic and the lower oil prices have marked increases in the budget deficit and government debt, and caused a sharp gross domestic product contraction for Bahrain, Fitch said.
Bahrain's government revenue fell 29% in the first half of 2020, the country's state news agency said on Monday.
Fitch said it forecast the state budget deficit to widen to 15.5% of GDP in 2020 from 4.6% of GDP in 2019.
According to the agency, budget spending will be pushed up by emergency spending of BHD287 million (2.0%-2.5% of forecast 2020 GDP), but contained by efforts to reduce opex by at least BHD100 million.
It noted that the state budget deficit will narrow to 5.3% of GDP in 2022 and the primary deficit will reach close to balance, as oil prices stage a mild recovery.
"We expect that the government will display commitment to gradually improving fiscal performance in the 2021-2022 budget (to be passed before the end of the year). However, there is considerable uncertainty about how the medium-term fiscal plan will be adjusted in light of the pandemic impact," Fitch said in its report on Bahrain.