S&P maintains Bahamas’ credit rating

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BB+/B rating with “stable” long-term outlook

NASSAU, BAHAMAS – Credit ratings agency Standard and Poor’s (S&P) has affirmed The Bahamas’ sovereign credit rating and ascribed a “stable” long-term outlook due to an expectation of further fiscal consolidation and moderate economic growth over the next one to two years.

The Bahamas’ credit rating was affirmed as BB+/B, which according to S&P reflect its expectation of strong institutions to continue driving public sector reform and policies to tackle fiscal and growth constraints; fiscal responsibility legislation passed in Parliament; new measures enacted to spur economic growth and a forecast of moderate economic growth this year.

S&P also said the affirmed sovereign credit rating reflects the country’s high external liquidity needs and debt levels, which have been rising, as well as the slow growth of the economy which has lost competitiveness over the past decade.

S&P warned that the rating could be lowered if public finances do not improve as quickly as expected; a result of stagnant economic growth, external shocks or weakened political commitment.

“We could lower our ratings on the Commonwealth of The Bahamas over this period if public finances do no improve as quickly as expected,” S&P said in its December report.

“Conversely, we could raise the ratings over the same timeframe if the government reduced the annual increase in general government debt beyond our expectations.

“This, combined with significantly higher economic growth forecasts, could lead to an upgrade.”

The affirmation of the BB+/B rating means The Bahamas will not have to pay more in interest servicing cost for foreign debt held.

The Bahamas staved off a downgrade and held a BB+/B rating in December 2017 — as a result of the government’s “solid mandate to facilitate economic and debt stabilization”, according to S&P.

In December 2016, the nation saw its outlook downgraded to “junk status”, as S&P noted that the government’s fiscal position had continued to weaken.

In its latest report, S&P again highlighted the country’s high external liquidity needs and debt levels.

It said the rising debt and slow growth of the economy, which has lost competitiveness over the last decade, has led to weakened public finances and higher debt levels.

However, the ratings agency said The Bahamas “strong institutional foundation” continues to provide the necessary checks and balances that prevented “further erosion to creditworthiness”.

“We expect the government to continue to progress toward its fiscal sustainability goals, which should support economic growth,” S&P said.

“Nevertheless, it will take time to reach the government’s target deficit and debt ratios, in our view.

“We believe that stronger tourism activity will bolster economic growth in 2018, following a return to growth in 2017, supported by the opening of Baha Mar.
“Longer-term growth prospects will depend on success in attracting new investment.”

Noting that the Minnis administration was elected with a strong mandate to rein in government spending, reform the public sector and encourage private sector growth, S&P said the government has enacted policies and legislation in support of its mandate.

It said these include measures to shore up public sector finances, improve the transparency and accountability of government, the ease of doing business, and strengthen the country’s anti-money laundering and counterterrorist financing regime.

“These measures are encouraging and support our already positive view of The Bahamas’ institutional profile,” S&P said.

In September, Parliament passed the Fiscal Responsibility Act, which seeks to drive down fiscal deficits and meet the government’s targeted 50 per cent debt-to-GDP ratio.

The legislation also calls for a Fiscal Responsibility Council made up of civil society and a fiscal strategy report which would be reviewed by the council.

Of the legislation, S&P said, “Although these limits, if met should arrest the deterioration in the country’s fiscal deficit and debt levels, their implementation targets are 2020/2021 and 2024/2025, respectively. In 2018, we expect our measure of net debt to reach 48.9 per cent of GDP.

Thereafter, we expect more moderate deficits will slow the debt burden increase.”

The government’s quarterly report on budgetary performance, released in October, showed the government reduced the deficit by more than $56 million when compared to the same period in the last fiscal period primarily due to increased value-added tax collections and stamp tax collections.

The government tabled its fiscal strategy report in the House of Assembly last month.

It projected a 0.8 per cent gross domestic product (GDP) deficit in the fiscal year, 2019/2020.

The government also projected a debt-to-GDP ratio of 52.4 per cent during that fiscal year.

This month, Parliament passed a package of financial bills in compliance with international financial sector regulatory bodies.