NASSAU, BAHAMAS — Credit rating agency Moody’s yesterday slashed this nation’s sovereign ratings from ‘Ba3’ to ‘B1’, but with a stable outlook.
In a statement yesterday, the Ministry of Finance said the rating agency was concerned that the country’s elevated external borrowing costs could lead to more limited financing options if experienced over an extended period of time. It’s a circumstance that would the government’s liquidity risk.
The country slipped from Ba2 to Ba3 last year with the rating agency citing significant erosion of the country’s economic and fiscal strength due to the COVID-19 pandemic.
In its country analysis last year, Moody’s revealed The Bahamas is scheduled to repay a total of $3.65bn in debt principal ahead of the next general election in 2026.
In its statement yesterday, the ministry also noted Moody’s concerns over the government’s positioning to meet its obligations in the long term, highlighting a more challenging period beginning in 2027.
“Moody’s acknowledges that the ongoing economic recovery, driven by a rebound in tourism, and the improved fiscal performance as demonstrated in the past fiscal year, will lead to reduced borrowing needs and greater fiscal consolidation going forward,” read the ministry statement.
“Their concern at the moment is that elevated external borrowing costs, if experienced over an extended period of time, could lead to more limited financing options thus increasing government liquidity risk.”
The ministry maintained that the government has laid out a clearly articulated strategy in its annual borrowing plan to mitigate against the impact of the elevated external costs being seen now.
“The plan has identified the local market and multi-laterals as major sources of financing during this period,” the MOF statement continued.
“Multi-lateral support via guarantees and other credit enhancement will be used to attract other private financing and the Ministry has already seen significant appetite for such structures. This, in combination with lower gross financing needs, has eliminated the need to go to the bond market in the near to medium term.
“Moody’s acknowledges that the Government is well positioned to meet its obligations in the near to medium term but points to what they consider to be a more challenging period beginning in 2027. A look at our repayment profile in the Medium Term Debt Strategy would show that this period is quite favorable as it was structured to pay our obligations down in a consistent manner, avoiding large swings in debt service from year to year. In addition, as budgeted, assets continue to accumulate in the sinking funds established to service that debt, and the budgeted amounts are now being supplemented by tax arrears collected.
The ministry added: “We believe that as we execute the strategy outlined in our fiscal strategy report and our borrowing plan, there will be improvements in debt affordability and fiscal consolidation which will put upward pressure on our ratings.”
However, Opposition Shadow Minister for Finance Kwasi Thompson yesterday characterized the downgrade as evidence of the government’s failure to satisfy the rating agency’s concerns.
“Clearly the Government has failed to satisfy the rating agency of its ability to access domestic or international credit at affordable interest cost without substantial external credit support from international financial organizations to guarantee repayment, a clear indication of credit weakness,’ Thompson said in a statement.
“It is clear to us that the Government’s excessive discretionary spending has contributed to this view. We believe the Government’s failure to abide by its Fiscal Strategy Report and fiscal targets also contributed to this rating downgrade, while the recently published Annual Borrowing Plan failed to impress the Rating Agency with concern noted on the availability of domestic financing to satisfy external maturities.
Thompson urged the government to stick to its published fiscal strategy report and budget, and maintain a record of consistent positive revenue achievements and expenditure control.
He added: “The Opposition has consistently advised the Government that there would be consequences for breaking the law and making fiscal promises and only months later breaking those same promises.”
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