NASSAU, BAHAMAS — An American credit rating agency yesterday pushed the country’s credit rating further into junk territory as it now expects the Bahamian economy to contract by 21 percent this year.
S&P Global Ratings, formerly Standard & Poor’s, lowered the country’s credit rating one notch to BB- from BB due to weaker-than-expected economic and financial conditions as a result of COVID-19.
“The country’s fiscal reform measures have evolved slowly, and we expect the pandemic will hinder meaningful public finance reform, while large fiscal deficits and a high debt burden increase funding pressures,” S&P said in a statement.
The credit rating agency had lowered this nation’s credit rating to junk status in April, with its latest action pushing the country’s credit rating down further.
S&P said it now expects the economy to show a contraction of 21 percent in 2020 with a gradual recovery starting in 2021, although it will take several years to reach pre-pandemic levels of activity.
S&P noted that it believes there is a one-in-three chance the rating could be lowered over the next year if the economic recovery in 2021 is weaker or more prolonged than expected.
“We have lowered our institutional assessment of The Bahamas due to the political challenge of addressing shortcomings in public finances in an uncertain economic climate over the next one-two years,” the rating agency said.
In a statement, Deputy Prime Minister and Minister of Finance Peter Turnquest said: “The government remains committed to meaningful public finance reform.
“We have accelerated our legislative reforms to strengthen the country’s fiscal framework, and we are following through on structural reforms in the coming months to significantly strengthen accountability and transparency in fiscal and procurement matters.
“We cannot forget that The Bahamian economy is experiencing unprecedented shocks from two catastrophic external events. Nevertheless, we remain confident in the economy’s ability to rebound and our commitment to restoring fiscal balance over time.”
He added: “The Bahamas’ vulnerability to severe external shocks has been apparent throughout this crisis, but we are in the same boat as most countries around the world. It remains to be seen just how deep and prolonged the impact of this economic crisis will be. The government is taking proactive and prudent steps to meet its obligations and to plan for the recovery.”
S&P said: “We expect The Bahamas will have a deficit of $1.3 billion in fiscal 2020-2021 (12.4 percent of GDP), in line with government projections. We expect the change in general government net debt will average 7.1 percent of GDP during 2020-2023, and 4.9 percent during 2022-2023.”
According to the rating agency, based on the gross external liabilities of the country’s large banking sector, it expects the gross external financing needs of the public and financial sectors to be 352 percent of current account receipts in 2020, up from about 200 percent in 2019.