Bahrain upbeat on economy despite ratings cut

Bahrain's central bank said on Saturday its economy "remains robust supported by a strong banking system", after S&P Global Ratings lowered the country's long-term foreign and local currency sovereign credit ratings to B+ from BB- on Friday.

The ratings agency's move also prompted the central bank to reaffirm the country's currency peg to the US dollar.

S&P Global Ratings said the rating cut was due to weak external liquidity and increasing financial risk due to more limited access to international capital markets.

The central bank of Bahrain said the kingdom "remains committed to maintaining a fixed rate regime with the US dollar" for its dinar currency, adding that the IMF has endorsed this policy.

"Despite the current low oil price, the economy continues to grow with low inflation reflecting the government’s ongoing initiatives to foster sound fiscal and economic policies," the bank said.

"Notwithstanding the rating agency’s action, the economic situation in Bahrain remains robust supported by a strong banking system," it added.

S&P said its outlook on Bahrain was stable, reflecting an expectation of financial support from neighbouring sovereigns, despite the risk of the central bank not meeting a surge in foreign currency demand or tempering the effects of a worsening of investor sentiment.

Separately, the state-run Bahrain Petroleum Co (Bapco) has awarded a consortium led by UK-based TechnipFMC a contract to expand Bahrain's only oil refinery.

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A spokesman for South Korea's Samsung Engineering, also a member of the consortium, said at the weekend the group received a letter of award from Bapco on November 30 to execute the project in a contract worth a total amount of US$4.2 billion.

Bahrain has long been planning to expand the refinery, which officials estimated would cost $5bn.

Bapco and TechnipFMC did not respond to a request for immediate comment. Tecnicas Reunidas declined to comment.

Bahrain's oil minister Sheikh Mohammed bin Khalifa Al Khalifa had said the contract would be signed before the end of the year.

The refinery has a processing capacity of 267,000 barrels per day (bpd), but the Bapco modernisation programme aims to lift that to 360,000 bpd by adding and replacing some units.

Bahrain relies on output from the Abu Safa field that it shares with Saudi Arabia for the vast majority of its oil.

A new pipeline will replace an ageing 230,000 bpd link, allowing the refinery to process more crude for its expansion.

Wholly owned by the government of Bahrain, Bapco's operations are in the refining, distribution, sale and export of crude oil and refined products.