The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas needs to “start paddling forward” to achieve a higher credit rating, a leading private sector executive yesterday arguing that foreign direct investment (FDI) could not be the economy’s “sole driver”.

Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, said “the real upside” from Wednesday’s Standard & Poor’s (S&P) report was the decision not to downgrade this nation’s sovereign creditworthiness any further.

An improvement in the Bahamas’ economic outlook from ‘negative’ to ‘stable’ was the best outcome this nation could have expected, but Mr Bowe conceded that it had yet to execute promised fiscal reforms.

Although the Bahamas was “at least treading water”, the BCCEC chairman told Tribune Business that S&P had sent a clear message that it viewed increased economic growth as a vital component to a fiscal turnaround.

He warned that this nation could not continue to rely on “one off” FDI projects as the sole source of economic growth, adding that it was vital to press local investors and businesses to redeploy funds presently sitting in the bank.

“The reality is they’ve only gone on the last analysis, in which they were going to look forward to actual VAT implementation and how well it’s done,” Mr Bowe said of the S&P report.

“The fact they’ve not raised the negative outlook is a bit concerning, as they are not satisfied it will be implemented in its entirety to get us where we need to go.... In reality, we’ve only made a commitment, and not executed on the plan yet.”

S&P, in maintaining the Bahamas’ sovereign credit rating at ‘BBB/A-2’, just two notches above ‘junk status’, indicated that passing the VAT Act and regulations in August had given this nation breathing space and staved off another downgrade - for the moment.

It added that hitting annual VAT revenue targets equivalent to 3 per cent of gross domestic product (GDP), and achieving corresponding deficit and national debt reductions, would be “key” to avoiding another rating downgrade.

“The real upside is that they’ve not changed their position,” Mr Bowe told Tribune Business of S&P. “The best we could have hoped for was a ‘stable’ outlook, but there are a lot of commitments made and they want to see them come to fruition.

“We are at least treading water, and not moving backwards, which is good. But we need to start paddling forwards so we work our way to a higher credit rating and outlook.”

Mr Bowe added that S&P was also clearly monitoring the $100 million Bank of the Bahamas ‘rescue’, which involved a ‘bad loans for bonds’ asset swap with a government-owned special purpose vehicle (SPV).

Lisa Schineller, S&P’s lead country analyst for the Bahamas, told Tribune Business on Wednesday that the ‘rescue’ might “weigh” on future assessments of this nation’s sovereign debt, as the Government ‘Letter of Support’ for the bail-out was effectively a guarantee.

“It’s a potential drain on the Government’s purse, and they’re obviously concerned,” Mr Bowe told Tribune Business.

He added that S&P’s position once again emphasised the need for the Government to fully disclose all details on the Bank of the Bahamas ‘rescue’, and how the $100 million in ‘bad’ loans will be worked out over the next 10 years.

While there may be no need for S&P’s concerns, Mr Bowe said outsiders watching the Bahamian economy “need to be clear” on what the Bank of the Bahamas ‘rescue’ means.

The Chamber chairman said the S&P report’s reference to economic growth made clear the rating agencies were not solely focusing on fiscal measures to turn the Bahamian economy and government finances around.

“The Government and private sector have been put on notice that we need initiatives for economic growth,” Mr Bowe told Tribune Business. “They’re not satisfied that taxes alone are going to do it.”

While FDI, and economic growth “spurred” by developments such as Baha Mar, was positive, the Chamber chief added that the Bahamas needed to generate sustained local and foreign investment - not “one-off” projects.

“FDI should really be a supplement to local economic activity, and shouldn’t be the sole driver of economic activity,” Mr Bowe said. “It’s important that we get investor groups and investment funds to be redeployed.”

He suggested that a number of Bahamian investor groups and institutional investors were “sitting on cash” that could be put to better use in the economy’s productive sectors.

With almost $1.15 billion in excess liquid assets in the Bahamian commercial banking system at end-September 2014, Mr Bowe said the banks themselves did not want these sums because they could find no lending outlet for them.

“There have to be opportunities for depositors to take their money out of the banking system and invest in more viable business ventures that can yield higher returns,” he said.

“If there’s churning of money in the economy, there’s GDP growth, which leads to the expansion of the economy, expansion of wages and salaries, and expansion of employment.”

Mr Bowe added that unlike FDI projects, where all the profits were likely to be repatriated, those generated by Bahamian-led investments would stay in the country and further build the economy.