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Moody’s affirms Bahrain, Sharjah moderate economic strength

Moody’s affirms Bahrain, Sharjah moderate economic strength
The credit rating of Sharjah stood at A3

Mubasher: Moody's on Friday announced its periodic review of GCC issuers including the governments of the UAE's emirate of Sharjah and the Kingdom of Bahrain.

Sharjah

Moody's put its credit rating for Sharjah at A3, with a ‘moderate (-)’ economic strength.

Despite a diversified economy in the UAE, Sharjah's economy "is exposed to macroeconomic volatility in the UAE federation; a ‘High (+)’ institutional strength, in line with Moody's assessment of the UAE, constrained by lack of transparency highlighted by the limited scope, timeliness, and frequency of economic and fiscal data," Moody's said in its report.

It further added that a Sharjah's economy was also impacted by "High (-)" fiscal strength alongside a moderate but growing debt burden, a narrow tax base, low government revenues as compared to a percentage of gross domestic product (GDP).

In addition, the emirate's economic growth was "a susceptibility to event risk at "Moderate (-)", driven by geopolitical risk stemming from regional tensions with Iran, as well as with Yemen and Qatar," Moody's highlighted.

Bahrain

As for the kingdom of Bahrain, the international rating agency set the latter's issuer rating at ‘B2’ based on the country’s significantly high income levels and diversified economy.

Bahrain also enjoys extra-budgetary funding, which supports its credit profile.

The rating reflects Bahrain's ‘Moderate (-)’ institutional strength, as it balances strong governance indicators despite a poor track record of implementation of fiscal reforms, according to Moody’s.

 "Very Low (-)" assessment of fiscal strength on the back of high and increasing government debt burden and low debt affordability constraints sovereign's rating. Moreover, Moody's assesses Bahrain's susceptibility to event risk as "High", driven by both government liquidity risk and external vulnerability risk," Moody's highlighted in its report on Bahrain.

It further said that the Bahraini government's liquidity risk was mainly due to high borrowing at a time when there is tightening of global liquidity. Despite that, Bahrain's access to funds from its neighbouring GCC peers could "mitigate some of the risks."

"External vulnerability risks stem from very thin buffers which are insufficient to cover external financing needs," Moody's concluded.