The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Wall Street believes the Bahamas has failed to meet projected economic growth targets for 2012, a leading rating agency finding that GDP expansion is set come in “under 2 per cent”.

Moody’s statement runs contrary to predictions by the International Monetary Fund (IMF), the Bahamian government and others that the economy would grow by at least 2.5 per cent in 2012.

Some, including former Prime Minister Hubert Ingraham and others, even suggested the Bahamas would enjoy 2.7-2.8 per cent economic growth.

Moody’s gave its latest prognosis in a ‘credit opinion’ on the Bahamas that was issued late last week. Following just a week behind its decision to downgrade this nation’s sovereign credit rating from ‘A3’ to ‘Baa1’, the rating agency questioned whether the recovery of this nation’s tourism industry was sustainable, given the continuing US economic and fiscal uncertainties.

Noting that the Bahamas had spent $6 million to-date on the ‘Air Fare Credit’ programme to “subsidise” the tourism industry, Moody’s added that it also expected the Government’s short-term borrowing and fiscal deficit to “accelerate” due to infrastructure and social security spending.

Foreign currency debt, which now accounts for 56 per cent of the Government’s total debt, was also “on the rise”, although the maturity profile of these various paper issues was favourable for the Bahamas.

And, returning to a previously articulated theme, Moody’s said the Christie administration’s attempt to regain majority control of the Bahamas Telecommunications Company (BTC) “raises fundamental concerns about policy predictability and could damage the country’s investment climate”.

All told, Moody’s ‘credit opinion’ provided precious little Christmas cheer for a somewhat beleaguered government and moribund economy, effectively piling on the ‘doom and gloom’ following the previous rating downgrade.

“The economy is on track to achieve growth of under 2 per cent in 2012,” Moody’s said, “driven by a modest recovery in the high value-added tourism sector, public sector investment in construction and foreign direct investment in the tourism sector.”

While Moody’s 2013 GDP growth estimate for the Bahamas is in line with the IMF’s and others at 2.5 per cent, its latest assessment underscores that this nation’s economy is not growing fast enough to significantly dent a near-15 per cent unemployment rate and the growing fiscal problems.

Central government debt was forecast to hit a figure equivalent to 53.2 per cent this year, and rise to 57.3 per cent in 2013. Add in the contingent liabilities (sums guaranteed on behalf of agencies and corporations), which is around 7 per cent, and the total debt-to-GDP ratio will exceed 60 per cent this year, then 64 per cent in 2013.

Moody’s also puts the fiscal deficit at 6.3 per cent this year, and 6.4 per cent for 2013, reiterating its concerns about the Government’s inability to rein this - and the debt-to-GDP ratio - in over the short-term.

“The Government’s financial deficit continues to widen, financed primarily by short-term domestic borrowing, and we expect this pace to accelerate as the Government increases capital spending to support several resort developments and social spending on programmes such as the mortgage support plan,” Moody’s added.

“Foreign currency debt, which accounts for 56 per cent of total government debt, is on the rise as well, albeit at a slower pace. However, average maturity on foreign currency debt is around 14.4 years, which limits rollover risk.”

As for the Bahamas’ major industry, Moody’s added: “Tourism arrivals and occupancy rates have improved, but revenues continue to lag pre-recession levels, depressed by competition from other Caribbean markets and a weak recovery in household disposable income in the US.

“This has prompted the Government to increase spending on subsidies and tourism promotion through investments such as the $6 million air credit programme. Given increased economic uncertainties currently facing the US - the Bahamas’ major tourism market - it is unclear whether the economic recovery will be sustainable.”

The Wall Street rating agency also described the Government’s continued effort to wrest majority ownership of BTC back from Cable & Wireless Communications (CWC) as “a credit negative”.