SINGAPORE — Moody's Investors Service has downgraded on Friday the government of Bahrain's long-term issuer ratings to B2 from B1 and maintained the negative outlook.

The key driver for the rating downgrade is a further rise in Bahrain's external and government liquidity risks to particularly elevated levels, constraining access to market financing to a greater extent than Moody's previously envisaged. Despite higher oil prices over the past year, the government's gross borrowing needs remain very high and foreign exchange reserves very low. Meanwhile, heightened external and government liquidity pressures have not prompted the authorities to accelerate the implementation of fiscal reforms, which Moody's expects to remain very slow.

The B2 rating assumes that Bahrain's Gulf Cooperation Council (GCC) neighbors will provide some financial support, consistent with a broad statement issued on 27 June and without which Bahrain's creditworthiness would be significantly weaker.