Country’s risk profile set to rise – says economist

NASSAU, BAHAMAS — The country’s risk profile will undoubtedly increase with the impact of the COVID-19 pandemic on the country compounded by the downgrade of the Bahamas’ sovereign debt a local economist has warned, noting that the future and scale of foreign direct investment projects could be impacted.

Rupert Pinder, an economist and University of The Bahamas professor told Eyewitness News, “We are being impacted by the COVID-19 pandemic and that is being compounded by the downgrade of the sovereign debt. That is going to increase the country’s risk profile in my view,” said Pinder.

He continued, “When an investor is investing in a country they look at the country’s risk factors to the extent to which it affects their ability to repatriate profits in foreign currency. Obviously there will be a concern and the extent to which the downgrade takes your sovereign debt to below investment grade. The question is how this would impact foreign direct investment from the standpoint that an investor is looking to be paid a premium on his investment. That is something which could affect the scale of investments going forward and whether an investor would be looking for more concessions from the government as a result of certain risk factors, especially in the case of the downgrade.”

Pinder noted that more concessions equates to revenue foregone, while noting that some may argue that in the absence of these developments  government may not have earned said revenues in any event.

Last month credit ratings agency Standard & Poor’s lowered this nation’s credit rating to junk bond status. The move came just days after ratings agency Moody’s predicted an eight percent contraction in local economic activity this year due to the COVID-19 fall-out, and placed the country’s Baa3 rating on review for downgrade.

“As a result of the downgrade we now have to borrow at higher interest rates as a result and could be squeezed out of some of these credit markets. Many investment houses do not invest in junk bonds or investments considered to be below investment grade and so that downgrade narrows the sources you can get in terms of you foreign currency borrowings.”