Bahrain's long-term government issuer rating of 'Baa3' is supported by high per capita income and a strongly positive net international investment position. However, increased pressure on public finances represents a key challenge for the kingdom, said the global rating agency.

The agency forecasts that absent significant reforms, Bahrain's deficits will remain wide, leading to a further rise in its debt burden over the coming years, which is reflected in the negative rating outlook.

"The recent oil price shock has further intensified the ongoing deterioration in Bahrain's government finances, given that oil and gas related revenues account for about 90% of total government revenues. In addition, the rapid expansion of current expenditure has eroded the kingdom's fiscal flexibility," said Steffen Dyck, an analyst at Moody's.

He added that the agency expects that under present conditions, Bahrain's fiscal deficit will likely widen to 14% of GDP in 2015, and stay wide at 10% in 2016. Correspondingly, the government's debt burden would increase to more than 70% of GDP by end-2016 from around 46% by end-2014.