TUESDAY’S first cabinet meeting of the newly-elected PLP government, marked Day One of its first 100 days of governing, Prime Minister Perry Christie announced. Day One was also marked with a warning salvo from Moody’s Investment Services, one of three major credit rating agencies.
One could say that the new government entered its second term with a bang, but the bang did not bring good news. The credit agency warned that the PLP’s election-promised mortgage plans created a “moral hazard” that “could increase Bahamian mortgage delinquencies and cost the Government a sum equivalent to 3.1 per cent of GDP spread over five years,” Tribune Business reported. Moody’s saw the move as demonstrating a “lack of commitment” on the part of the new administration to tackle annual fiscal deficits running at over 4 per cent of gross domestic product.
Moody’s described the election-promised mortgage relief plan as “a credit negative,” implying that its implementation could lead to a further downgrade rating. Something, said Moody’s, that could scare away foreign investors and increase the Bahamas’ borrowing debt servicing costs in the international capital markets. It was pointed out that with economic growth and recovery a top priority, the last thing the Bahamas needed was to send the wrong message that would deter foreign direct investment, Tribune Business reported.
It was also the last thing the PLP government would want to deal with considering the hoop-la it raised last year when Moody’s downgraded the country from “stable” to “negative” due to the mounting debt accrued over the past decade. Earlier that year — in May — Standard & Poor affirmed its BBB+ rating for the Bahamas. Up to that time, the Bahamas maintained an A3 government bond rating.
The PLP were scathing in its remarks condemning the downgrade. It said the Moody downgrade “confirms government’s mismanagement”.
Of course, they were referring to the FNM government, which, in turn, explained that the recent global economic and financial crisis necessitated the “extraordinary levels of spending” despite a “precipitous” decline in revenue.
It explained that funds were needed to “safeguard the financial system, boost economic activity and provide assistance to Bahamians badly in need of help in these trying times”. The PLP would have none of it. Now faced with the same problem, its desperation appears to be tempting it to commit political suicide.
Despite being aware of the critical financial situation, on the campaign trail Mr Christie promised the impossible to voters. Now that the time has come to deliver, he is going to find it difficult to explain that he might not be able to keep his commitment.
In a 10-point plan of delivery, he promised Bahamians who had defaulted on their mortgages and had lost their homes to banks, that he would — among other things — get banks to agree to write off 100 per cent of unpaid interest and fees for all those facing foreclosure.
In Mr Christie’s opinion, “this should be acceptable to the banks as they would already have made provisions against these losses”.
“Therefore, writing off the unpaid interest and fees would have no immediate financial impact on the banks,” he said.
“As for the delinquent borrowers, they would benefit from the fact that their outstanding balances would fall substantially.”
Rather than the Christie plan being acceptable to bank managers, the very thought sent shivers down their spines. They knew that this would be a signal for Bahamians to stop their mortgage payments in the knowledge that not only would rates be lowered, but their debt would eventually be written off by government.
According to Moody’s, there is some $3.2 billion worth of outstanding mortgage loans in the Bahamas’ banking system, which is equivalent to 39.6 per cent of GDP.
The situation is so delicate that today bankers are unwilling to speak to the press about the problem.
However, one banker told Tribune Business that as a result of the new government’s promises, “banks are already seeing a deterioration in arrears for mortgages under 90 days past due”.
“Those under 90 days past due have increased since the PLP announced its scheme. We were alarmed at the trend,” said the banker.
We all feel sorry for any family who has lost their home, but in trying to rescue them, the PLP government cannot torpedo the whole Bahamas.
They have to stop and think again.