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Bahamas reacts to S&P downgrade

Bahamas reacts to S&P downgrade
Michael Halkitis (GP)

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NASSAU, Bahamas –The Bahamas government says the latest credit ratings by the US-based Standard and Poor’s (S&P) are as a result of the continued economic and fiscal impact of Hurricane Dorian and the coronavirus (COVID-19) pandemic.

In addition, Economic Affairs Michael Halkitis said the position given by the rating agency underscored the failure of the previous administration to implement meaningful fiscal reforms to existing revenue models and ill-conceived debt management strategies

In a statement last weekend, S&P 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.”

Halkitis said economic recovery and growth would be the first priorities of the new Phillip Davis government that came to power on September 16 defeating the then ruling Free National Movement (FNM) government of Dr Hubert Minnis.

He told reporters the imprudent policy choices related to borrowing over the past four years have increased the country’s external indebtedness despite the existing domestic capacity.

“The Davis administration understands the urgency of this matter and the need for immediate action to reverse the trend of consecutive downgrades in recent years,” Halkitis said in a statement released following the S&P credit downgrade.

“This is why a supplementary budget was necessary, to ensure alignment with our priorities and to proactively address the social, economic and fiscal challenges facing our nation.

“We are already taking steps to address the concerns expressed in S&P’s report, beginning with our balanced approach to stimulating the economy and providing needed relief to the Bahamian people. We are doing this without further contributing to an increase in the projected national debt in the supplementary budget.”

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.

Halkitis said the government remains committed to strengthening the Fiscal Responsibility Act and public financial management legislation, as well as enhancing revenue administration and reimagining revenue policy. (CMC)