Standard & Poor’s (S&P) last week released its Bahamas Country Profile, referencing the foreign and local currency long and short-term ratings of ‘A-/A-2′ assigned in December. The outlook continues to be “stable”, with indications that the economy should show a 2.5 % growth in 2004.
Despite a heavy concentration in one sector, the Bahamian economy proved to be more resilient to the recent global economic downturn than that of its more diversified peers, attesting to the better competitive position of the tourism sector in The Bahamas vis-a-vis some other destinations.
Prudent economic policies have given the nation a high standard of living compared to its peers (GDP per capita now stands at US$17,000), a skilled labour force, and an institutional framework that sustains economic flexibility.
The Report states that The Bahamas’ stable parliamentary democracy underpins consensus on major economic policies. *”The government is committed to keeping the income-tax-free structure, maintaining an environment that is conducive to continuous investment in tourism, and further improving the regulatory and supervisory environment for the financial services.”* The S&P analysts nevertheless point out that a more proactive stance on privatisation is needed to boost the country’s growth prospects and ensure ongoing investment. They said, *”Competitiveness and growth remain dependent on continued infrastructure investment, meeting international regulatory standards for financial services and liberalising the utilities.”*
S&P say the positive ratings on The Bahamas reflect its:
· Political stability and prosperous economy. At US$16,600, per capita, GDP is high compared with similarly rated sovereigns. The economy of The Bahamas is closely tied to that of the U.S., with sharper swings in growth reflecting the concentration in tourism and financial services.
· Steady monetary and fiscal policy stance. The Bahamian dollar has been pegged at parity to the U.S. dollar since 1973, ensuring low inflation and generating minimal pressure due to close economic links to the U.S. and generally prudent fiscal management in The Bahamas. The general government deficit has averaged 0.8% of GDP (including a 1.1% of GDP social security surplus) over the past five years.
· Low public sector external indebtedness, amounting to an estimated 17% of current account receipts (CAR) at year-end 2003. Official reserves equal to about the same, suggesting a balanced net public sector external position, but about half the reserves must be held in support of the Bahamian dollar monetary base.
According to the report, the stable outlook balances Standard & Poor’s expectation for continued growth in the tourism and financial services industries and progress on tax reform and privatisation against the challenges of managing a narrowly based economy.