Oman and Bahrain removed from negative credit list

Two Gulf states are removed from Standard & Poors CreditWatch negative list with the firm citing easing of political tensions

Standard & Poors said on Wednesday it removed Bahrain's ratings from CreditWatch negative as political tensions have eased and on expectations that increased public spending will lift economic growth next year.
S&P however, assigned a negative outlook to the long-term ratings because "the specter of renewed political turmoil could result in weaker economic performance than in our base case expectations," S&P said in a statement.
The rating agency affirmed Bahrain's "BBB/A-3" long- and short-term ratings.
The rating firm also removed Oman's ratings from CreditWatch with negative implications because the Gulf country's political pressures have eased since May.
S&P affirmed Oman's "A/A-1" long- and short-term ratings but kept the outlook negative to reflect the likelihood of a downgrade if latent political risks re-emerge and cannot be appeased by planned spending increases aimed at addressing public demands raised earlier this year.
"The removal of the ratings from CreditWatch negative comes as immediate political tensions appear to have dissipated in recent weeks, and seem likely to remain subdued in the short term," S&P said in a statement.
"Moreover, the unrest did not appear to have an appreciable impact on economic activity or foreign investment inflows."
The easing of tensions and the return to normal in Oman could be attributed to quick responses by Sultan Qaboos bin Said al-Said.
They include reshuffling the government, raising private-sector wages, creating 40,000 new public-sector jobs, providing unemployment benefits for job seekers, increasing the amount of public scholarships available for higher education and building a second public university.
The cost of these measures is estimated to reach 4 per cent of GDP in 2011, according to S&P.
But the ratings could come under downward pressure if fiscal performance weakens in the absence of revenue-enhancing measures outside the oil sector, S&P said, noting that Oman has a comfortable fiscal buffer, which enabled the expenses.
Yet, "the ratings could stabilize at their current level if political and social reforms ease tensions, and if the underpinnings of economic growth strengthen, based on tangible diversification of theeconomy," S&P said.
Oman had a fiscal surplus of 10 per cent of GDP in 2010 and S&P estimates this will reach 12 per cent in 2011.
Oman could also gain from possible additional funding from the Gulf Cooperation Council Development Fund, which has pledged the equivalent of 1.5 per cent of GDP per year for the next 10 years.