NASSAU, BAHAMAS — Moody’s has predicted that government borrowing needs will exceed 17 per cent of gross domestic product in 2020/2021.
The credit ratings agency yesterday lowered the country’s credit rating two notches from Baa3 to Ba2 with a negative outlook.
It said: “Moody’s forecasts government borrowing needs will exceed 17 perrcent of GDP in 2020/21, above historical levels of about 7 percent of GDP.
“About 5 percent of GDP corresponds to principal repayments, most of which are due to reliable domestic sources. Moreover, because of the loss in tourism flows, The Bahamas’ external accounts will deteriorate in 2020 and lead to a reduction in its foreign exchange reserves. Consequently, the government plans to finance a large share of its borrowing needs — over 11 per cent of GDP — via external sources. “
Moody’s noted that following the intensification of the coronavirus crisis in March 2020, The Bahamas’ sovereign bond spreads widened significantly.
“The yield on its 2028 global bond reached 11.6 percent in May but has since stabilized around 8.2 percent,” the agency stated.
“Even at this lower level, The Bahamas’ bond yields are still higher than historical levels of around 6 percent. This points to more constrained market access and, should these bond spreads remain at these levels, it would increase government liquidity risks and place additional pressure on debt affordability metrics.”
Moody’s said that it expects the government will be able to fund part of its financing requirements through official creditors, including multilateral institutions.
“However, the authorities have stated that an important portion of the funding needs will have to be financed through external bond issuances, which will likely prove more expensive than historically and add pressure to debt affordability metrics.”