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NEW YORK – The US-based credit ratings agency, Standard & Poor’s (S&P), has affirmed The Bahamas’ sovereign credit rating while continuing to ascribe a “stable” long-term outlook to the Caribbean country due to the new government’s “solid mandate to facilitate economic and debt stabilisation”.
In its statement, S&P gave the Bahamas’ sovereign credit rating as BB+/B, saying it reflects its expectation of robust political institutions to “anchor fiscal consolidation” and higher, although still low, economic growth over the next one to two years — another positive sign for the Bahamas as it avoided blacklisting from the European Union.
But the rating agency warned that it could lower its rating over the next two years if public finances do not improve as quickly as expected, which could result from stagnant economic growth, external shocks or “weakened political commitment.
“The lack of confidence that this may generate could push debt costs higher, leading to a downgrade. Conversely, we could raise the rating over the same timeframe if the government reduces the annual increase in general government debt beyond our expectations. This, combined with significantly higher economic growth forecasts, could lead to an upgrade.”
In December last year, S&P slashed the Bahamas outlook to ‘junk status’ noting that the government’s financial position had continued to weaken.
But the then Perry Christie government said S&P did not take into consideration all of the economic factors that prove the country was on a path to growth.
In its latest report, S&P highlighted the country’s high external liquidity needs and debt level, noting that the rising debt and stagnant economy, which has lost competitiveness over the past decade, have led to a weakening of public finances and higher debt levels.
But it said the Bahamas’ institutional foundation continues to provide necessary checks and balances that have prevented further erosion to its creditworthiness.
“The new administration plans to create a more effective and efficient public sector .Its reforms should free up resources for economic growth that the private sector will lead,” S&P said, noting that in recent months, the government has consistently chipped away at the staff complement in key departments and agencies, which it said, upon coming to office, had ballooned with new hires over the last five years, particularly ahead of the general election.
“Nevertheless, we believe that underlying competitiveness issues will be difficult to overcome in the near term,” S&P said, adding “we expect that the measures implemented under the new administration should arrest the deterioration in The Bahamas’ fiscal deficit and debt levels.”
S&P acknowledged that it will take time to see the dividends of the government’s reform — that is, sustainable public finances and private sector growth — but noted that “strong political capital” will likely facilitate reforms early in the government’s term.
While government spending spiked in the run-up to the 2017 election and following Hurricane Matthew in October 2016, S&P noted that the new administration’s spending cuts across government ministries will reverse this trend.
Additionally, S&P also expects the pace of growth in both external and domestic debt to slow over the next three years. (CMC)