NASSAU, BAHAMAS — The latest credit rating downgrade by Moody’s will adversely affect the efforts to see this nation bounce back from the debilitating effects of the pandemic and global financial crisis, according to a governance reformer.
Hubert Edwards, head of the Organization for Responsible Governance (ORG) economic development committee underscored the main driver of the decision is the country’s debt circumstance.
“This aspect of our fiscal realities is difficult to change quickly,” he said.
“Consequently, policy makers must ensure that steps to improve the long-term potential of the country are taken. Ultimately, sustained above-average growth, and the attendant increase in government revenue is the most viable means to address this.”
Moody’s has cut the country’s sovereign credit rating from ‘Ba3’ to ‘B1’ – a ratings downgrade for the second consecutive year.
Edwards said: “The incidence of downgrades is becoming an almost annual affair, which creates significant uncertainty and disruption for the economy. Having regard for Moody’s improved outlook, from negative to stable; the reported performance of fiscal revenue; and the narrowing of the deficit, it is my view that the country should this time seek to take away a deeper message than in the past. The fixes that will secure sustainable outcomes lie in implementing fundamental reforms across a number of critical segments of the economy and institutions.”
“Moody’s stated basis for a future upgrade is instructive,” he continued.
“The country will secure and upgrade if there is “a demonstrated ability to access sufficiently diverse funding, which supports an improvement in debt affordability and reduces rollover risk”. These are all issues that the debt management strategy speaks to and therefore effective implementation with any requisite adjustments should become a central focus of the government. Fundamentally, therefore the ability to realize positive outcomes from efforts to create a better understanding of the credit market will be crucial. Unfortunately, the downgrade has arguably made this that more difficult.”
Edwards contended the response to this downgrade must take a different approach from the past.
“Given the very serious constraints, this downgrade should be used as an impetus to urgently drive reforms that will secure improvements in the country’s mid to long-term growth potential, as recently pointed put by the Governor of the Central Bank,” he said.
Edwards noted that government should place greater focus on addressing structural impediments, with a view of creating momentum toward a deeper level of resiliency in the economy.
“The administration should leverage the narrowness of the options available to initiate a wholesome national discussion examining choices while restarting plans and initiatives to secure growth. Going into 2024, the economy will return to its normal rate of growth. This represents a significant policy burden worthy of urgent and focused attention. The mistakes of the past should not be repeated. After previous crises, the USA, our closest and largest trading partner, and the global economy experienced robust growth while the economy trailed in performance.”
Edwards said that as the government focuses on all viable short-term solutions, it must simultaneously seek to “rev up the engine” to create momentum, ensuring that the country is well placed to take advantage of positive improvements in the global economy which will eventually come.
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