Moody’s Investor Services recently placed The Bahamas’ current rating on review for downgrade. The Government immediately responded, noting its confidence that this review will reveal that medium term economic prospects for The Bahamas are good given projected foreign direct investment, the government’s fiscal consolidation efforts and the implementation of innovative policy initiatives with respect to certain structural constraints the country has traditionally faced in the energy sector and labor market.
*”The Government’s position is that ongoing construction at various projects around the country is generating significant economic activity. While the archipelagic nature of The Bahamas at times creates a lag in economic activity in the Family Islands being reflected in official statistics, there is no question that the level of real economic activity in much of the major islands of The Bahamas is much higher than it was three years ago.”*
This, notwithstanding that the Caribbean region is being negatively impacted by lower commodity prices and external investment uncertainty through the loss of correspondent banks services – and the Government acknowledges that The Bahamas has not been completely exempt from any of these phenomena.
The Government attests, too, that growth prospects for the Bahamian economy are good with the imminent restart of construction at Baha Mar and its subsequent opening. In addition, challenges within the energy sector are being addressed by the new private sector management team at Bahamas Power and Light and the benefits of this will be realized in the short term.
*”The Government has strategically entered PPPs to deliver growth enhancing infrastructure in New Providence and the Family Islands to support economic growth. On the fiscal side the Government is addressing rising government debt through its fiscal consolidation plan.”*
Also referenced was the successful introduction of VAT, demonstrating the government’s commitment to its plan. Central to the plan is the modernization and enhancement of revenue administration. This is supported by the creation of a Central Revenue Administration which will lead to increases in the collection of real property tax and business license fees in particular.
Further, the rate of growth of government debt has declined steadily over the past 3 years and with recent revenue enhancement measures and expenditure control efforts, it is expected that the increase in debt will halt and the level of government debt will begin to decline in absolute terms by 2018/2019. *”As stated in the Prime Minister’s Budget Communication, $0.77 of every additional dollar raised since 2013 has gone to servicing the debt. Since 2013 the Government has also reduced its operating expenditure. In addition, the country’s debt profile remains very favourable with a large concentration of internal and intra-government debt and a uniform maturity schedule.”*
Moody’s did indicate that The Bahamas’ sovereign creditworthiness would stabilise at the current ‘Baa2′ if its review were to conclude that the Government’s policy response will support the strengthening of The Bahamas’ economic and fiscal strength, such that it comes into line with similarly rated nations.
Several drivers will come into play during the review:
* Assessment of the likelihood that the decline in The Bahamas’ economic strength will be reversed over the medium term – including the level of The Bahamas’ competitiveness relative to other similar economies, in order to gauge the effect this has on its economic strength;
* Assessment as to whether the Government’s debt ratios are likely to stabilise;
* Assessment of the effectiveness of the Christie administration’s policy response to its economic and fiscal challenges.
Reportedly, the review will also include a look at banking sector regulation and The Bahamas’ anti-money laundering/counter-terrorism financing framework in the context of heightened scrutiny of offshore centres and de-risking in correspondent banking.