Standard & Poor’s Ratings Services has raised its short-term foreign currency sovereign credit rating on The Commonwealth of The Bahamas to ‘A-2’ from ‘A-3’. At the same time, it affirmed its ‘BBB’ long-term issuer ratings on The Bahamas and noted that the outlook remains stable – reflecting a projected gradual tightening of the government’s fiscal stance over the next several years as growth turns positive, as well as generally stable external financing. In addition, the transfer and convertibility assessment remains at ‘BBB+’.
The change in the short-term foreign currency resulted from the revision of Standard & Poor’s criteria on the linkage between long-term and short-term ratings for sovereigns. The Bahamas’ track record of political and macroeconomic stability has delivered high per capita GDP, but the Bahamian economy remains vulnerable due to dependence on one primary sector and geographic market . S&P projects growth of 2.5% in 2012 and 2013 as tourism-related construction supports growth, despite a sluggish outlook for the U.S. economy.
The agency said the ratings could come under pressure if The Bahamas’ fiscal deterioration persists and its economic base erodes more severely. Conversely, the ratings could be raised if the government takes a more proactive policy response to reduce debt or if economic prospects strengthen, more sharply improving the country’s external balance sheet.