Following last month’s confirmation of the foreign and local currency long and short-term ratings of ‘A-/A-2′ and stable outlook assigned, Standards and Poor’s – one of the world’s preeminent providers of credit ratings – has released a credit report on The Commonwealth of The Bahamas.
Notwithstanding some identified weaknesses, including constrained fiscal flexibility and exposure to adverse external developments, S&P says its ratings on The Bahamas reflect its track record of macroeconomic stability, bolstered by prudent fiscal policies and steady monetary stance. Specifically referencing the political stability and economic prosperity of the jurisdiction, the report says GDP per capita of roughly US$18,000 is high compared with that of The Bahamas’ rating peers. *”The track record of macroeconomic stability and an economy based on tourism and the financial sector have produced a high level of wealth in The Bahamas. As such, GDP is close to oil-rich Middle Eastern countries, and above the ‘A’ median and most of the similarly rated peers.”* S&P projects 3.5% GDP growth in 2005.
The Report further points out that The Bahamas’ maintenance of monetary stability compares well with that of rated peers, and reflects the anchor provided by the country’s fixed exchange rate with the U.S. dollar. Inflation is reported as mildly lower than that of rated peers, and likely to remain below 2% over the medium term, in line with U.S. inflation.
S&P Analysts continue:
*”Monetary policy is dominated by the Bahamian dollar’s fixed parity with the U.S. dollar, which has created few pressures because of the strong economic link between the two countries. The banking sector is sound. Recent upgrades in the banking sector’s regulation and supervision strengthen the banks’ operations and improve the image of the Bahamian offshore sector internationally.”*
The Bahamas is said to be among the top offshore centres, because of its favorable tax regime, adherence to international standards of practice, good pool of financial professionals, and strong supervision and regulation. According to the S&P Report, the country thrives to continuously improve its regulatory framework, with analysts pointing to additional pieces of legislation passed in 2004 to further strengthen the regulatory and supervisory framework as well as to expand the range of available offshore financial products, following 11 bills legislated in December 2000. In addition, it says, the latest IMF assessment of financial sector supervision and regulation noted the “substantial progress towards the development of an effective regulatory regime in the Bahamas”.