Bahamas downgraded by Standard and Poor’s

The global ratings agency – Standard & Poor’s (S&P) has downgraded The Bahamas’ sovereign creditworthiness citing “the failure of successive governments to implement timely and effective” fiscal reforms even prior to COVID-19.

In a statement on Friday, the US based credit rating agency joined its rival, Moody’s, in plunging the country further into ‘junk’ status by slashing its long-term and local currency rating to ‘B+’ from ‘BB-‘ after the national debt increased by US$2.4 billion in two years.

However, S&P broke with Moody’s in simultaneously providing The Bahamas with a glimmer of hope by upgrading its “outlook” for this nation’s public finances from ‘negative’ to ‘stable’.

It based this upgrade on its expectation that the economy’s post-COVID recovery will drive increased revenues and narrow the Government’s annual fiscal deficit despite the absence of major reforms.

“The stable outlook reflects our view that the economic recovery presently underway will support government revenues and reduce pressure on government expenditures, supporting a gradual decline in fiscal deficits over the next 12 months,” S&P said in its Bahamas country analysis. “We expect continued, but decelerating, growth in the national debt.”

S&P also predicted that the Bahamian economy will expand by the equivalent of 3.7 percent of gross domestic product (GDP) in 2021, a rate that is higher than projections by both the International Monetary Fund (IMF) and the Central Bank of The Bahamas.

But, while its 8.6 percent GDP growth projection for 2022 is also higher than others’ estimates, S&P voiced concern that “slow progress” in enacting fiscal reforms had undermined the Government’s finances even before the double blow inflicted by COVID and Dorian.

“Although successive governments have continued to work on policies and legislation to support their fiscal responsibility mandate, they have not enacted material revenue measures or sustained expenditure cuts,” S&P said, adding that it anticipated the 10 percent VAT rate cut will be “revenue neutral”.

“We believe the new administration will take time to assess the country’s fiscal and debt situation, which may further delay the implementation of new fiscal measures,” the rating agency added.

“We believe the country’s track record of slow progress in reforming public finances and key sectors of the economy has contributed to the weakening of its financial profile over many years, and hurt its economic performance.

“Most notably, failure to advance public financial reform has led to a marked increase in the sovereign’s debt burden.”

Source-CMC