0

Bahamas Suffers ‘Largest’ Debt Growth In Caribbean

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas has suffered “the largest relative increase in government debt levels” in the Caribbean over the past five years, with a Wall Street rating agency predicting central government debt will hit 60 per cent of GDP by 2015.

Moody’s, in its full country analysis on the Bahamas, said this nation’s central government debt (which excludes contingent liabilities) rose by a sum equivalent to 21.8 per cent of GDP between 2008 and 2012. Coming on top of a debt equivalent to 30.8 per cent of GDP pre-recession, this took the central government debt to 52.6 per cent this year.

While only Trinidad & Tobago and the Domincan Republic have lower debt-to-GDP ratios in the Caribbean, charts produced by Moody’s showed that the Bahamas came close to doubling its central government debt post-recession.

“The Government debt ratio has doubled over the past decade to nearly 54 per cent of GDP, and with government guaranteed debt this number becomes even higher,” Moody’s said.

“Debt accumulation has been driven by a deteriorating fiscal balance. Government deficits went to 6.3 per cent of GDP in 2012, from 1.6 per cent in 2008, and we expect large deficits to persist through 2015-2016....

“We project government debt to reach a historically high 60 per cent of GDP by 2015, up from 30 per cent in 2006, placing the Bahamas on par with peers with low government financial strength and above the median debt ratio for ‘Baa1’ rated peers.”

With government-guaranteed debt standing at around 7 per cent of GDP, the Bahamas’ total debt-to-GDP ratio stands currently at around 61 per cent, and - at least according to Moody’s - will hit 67 per cent by 2015.

Moody’s candidly asserted that the Christie administration had “yet to credibly commit to a fiscal consolidation plan”. And it noted that the large amount of tax incentives granted to the industry meant tourism - the Bahamas’ largest economic sector - only accounted for 11.2 per cent of total government revenues.

The Wall Street rating agency also zeroed in on the multi-million dollar “implicit subsidy” provided annually to the Bahamas Electricity Corporation (BEC), which was exempt from paying duties on its fuel imports.

And Moody’s also implicitly criticised the former Ingraham administration, saying its plan to stimulate the economy via infrastructure and capital works projects, while running larger fiscal deficits, contrasted with the approach taken by other ‘Baa1’ rated countries.

“The trend observed in the Bahamas’ fiscal balance has diverged from that observed in ‘Baa1’ peers starting since 2009, as the Government decided to run larger deficits to stimulate the economy, while peers saw an improvement in revenues and a retrenchment of stimulus spending,” Moody’s said.

It added that “two structural factors will continue to drive fiscal performance through 2015”, namely the Government’s narrow revenue base and increased public spending on infrastructure/capital works and social security.

Noting that revenues were typically less than 20 per cent of GDP, Moody’s said 50 per cent of them were derived from “volatile trade-related Customs duties”. It added that the gradual phasing out of tariff barriers, such as duties, as the Bahamas graduates to full World Trade Organisation (WTO) membership, meant this would be a further handicap in years to come.

Meanwhile, Moody’s said it expected the Government’s capital spending to “remain elevated” for two more years, as it completed infrastructure projects and initiated others to support tourism/hotel industry developments. Transfers and “increased budgetary support to public sector corporations” would also keep expenditure high.

“While the Government plans to gradually reduce capital spending starting next year, high expenditures on social transfers will be difficult to retrench as long as growth prospects remain subdued and unemployment high,” Moody’s said.

“Lastly, interest payments have ratcheted up to 2.5 per cent of GDP in 2012, from 1.6 per cent in 2006, reflecting rising debt servicing costs..... Government debt servicing costs are high, as interest payments account for over 14 per cent of government revenues, up from around 9.3 per cent in 2007.”

Moody’s added that the Government’s gross financing needs, or what it needs to borrow to cover the fiscal deficit and amortisation, rose to 7.7 per cent of GDP in 2011 - more than double the 3 per cent equivalent required in 2005.

The former figure was lower than the peak hit in 2009, when the Government was forced to borrow a sum equivalent to 9.4 per cent of GDP to cover its financing needs. It obtained most of its funds from long-term debt instruments issued locally to Bahamian investors, with the Government issuing securities equivalent in value to between 2.1 per cent and 3.8 per cent of GDP between 2009 and 2011.

On the positive side, some 78.9 per cent of the Government’s debt was denominated in Bahamian dollars as at end-June 2012. However, the amount of debt held by overseas investors had risen from 3.3 per cent in 2007 to 10.3 per cent now.

“Domestic debt rose by 10.2 per cent of GDP to 38.6 per cent, and government guaranteed debt rose to 7.1 per cent of GDP from 5.2 per cent over the same period,” Moody’s added.

While Bahamian commercial banks and the National Insurance Board (NIB) had taken up most of the Government’s commercial paper, Moody’s warned it could “face a decline in market appetite for long-term government securities in the future”.

While external borrowing had also risen, via the $300 million bond issue in 2009 and loans from the likes of the Caribbean Development Bank (CDB) and China Export-Import Bank, Moody’s said this - and ‘currency risk’ - remained relatively low.

It added that the Bahamas was expected to borrow around $80-$100 million total from the CDB and Chinese sources over the next few years.

Also working in the Bahamas’ favour, Moody’s said, was that the Government’s debt had an averagte maturity (the date when investors have to be repaid their principal) - of 15.6 years.

Only $128 million, or 4 per cent, of the Government’s total debt is set to mature within the next one-two years. Another $324 million, or 10.1 per cent, will mature within two-five years, and $613 million in principal - some 19.2 per cent of the total - will have to be returned to investors within five-10 years.

The bulk - some $2.129 billion or 66.7 per cent - is set to mature in more than 10 years.

Comments

TalRussell 1 year, 3 months ago

A few days back I was heavily criticized for challenging Comrade "Appraiser" Christopher for missing the whole point when he ignores that it makes no sense to hand over even more of your money to either the previous red shirts regime, or the present Christie administration, if both have no respect for the way they spend and borrow into the billions?

Comrades make no mistake both Wall Street and Moody's agrees with my position because I am am dead-on right..

Secret "unearned" bonuses over at the National Insurance Board were being enjoyed under Hubert, and by recent press reports it continues under PM Christie as I speak.

I reminded Comrade "Appraiser" Christopher that he should have known that the greatest taxation facing all Bahamians is runaway inflation and being responsible for repaying such politically ill conceived and miss managed projects like over the budget of Hubert's roads scheme. 

Ever increasing taxes and charging for services and things that they define as being only government services charges and fees, when Bahamians know it is simply a sneaky way around the corner to avoid calling it for what it is...taxation.

Comrades anything Bahamaland's government takes out of the pockets of Bahamians is taxation. Leaving them with less cash to spend in stores,save or invest into the local economy.

If you define a tax as only those things that the government chooses to call a tax, you get a radically different picture from what you get when you say; “If it looks like a tax, acts like a tax and takes away your resources like "all" taxes do, then it’s a tax.”

0

concernedcitizen 1 year, 3 months ago

throw in that we are losing tourist to our neighbors becuase of bad sevice and high prices and the future is not bright for our lil Bahamaland

0

nyandorot 1 year, 3 months ago

Bahamas is already a failed State, leave now and let it self distruct

0

opaler 8 months, 3 weeks ago

Calling this economic failure “the largest relative increase in government debt levels” almost makes it sound positive. I always consult a helpful site before I make up my mind in which candidate I will vote for.

0

opaler 8 months, 1 week ago

That means that the people will invest in new canoe trailers? I think that we should work with what the nature and society is giving to us. Instead of staying in place and think about what you could have done we should think at what we can do.

0

opaler 7 months, 2 weeks ago

After all, they are the ones behind these statistics showing how much salaries should grow or should be decreased in the next period of time, like Raiser Kenniff noticed, for the national budget to reach the desired balance. The financial environment has suffered enough changes already for us, citizens, not to witness and get affected by these changes.

0

henjons88 5 months, 3 weeks ago

Finally someone understood that the future is in our hands and is taking action based on this, and not just speaking about it. It is not hard science thinking that younger people are more interested in alufabusa and investing in themselves therefore we should invest in them.

0

opaler 5 months, 2 weeks ago

I flew to the Bahamas last year with Mango Airlines on my 10th wedding anniversary. I had little to no idea about the struggles the Bahamians were facing, and I enjoyed my stay there. Anyway the trip helped me become more sensitive and discover that some of the most beautiful regions on earth are also struggling.

0

opaler 5 months, 2 weeks ago

I think this situation is due to the fact that very few people even among politicians are concerned about their financial IQ, I read about this on Somerset. I'm a fan of economic balance, myself, and I hope that Baha Mar finds a way to pull through.

0

Sign in to comment