The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Reactions to the Bahamas’ latest sovereign credit rating downgrade were mixed last night, with conflicting suggestions that it would “blow a hole” in the fiscal projections while “too much emphasis” was being placed on the Baha Mar dispute.

K P Turnquest, the Opposition’s deputy leader and finance spokesman, told Tribune Business that Standard & Poor’s (S&P) had given the Bahamas a very short period in which “to get our act together”.

The rating agency, in downgrading the Bahamas to one notch above so-called ‘junk’ investment status, said there was greater than a “one-in-three” chance that it could further slash this nation’s sovereign credit rating within the next six months to 24 years.

Much will depend on the outcome of the Baha Mar dispute and its handling by the Christie administration, plus how the Bahamas tackles long-standing structural imbalances and weaknesses that have held back economic growth (see other article on Page 1B).

Mr Turnquest, meanwhile, expressed hope that in retaining its ‘investment grade’ status the Bahamas’ ability to access international capital markets - and its borrowing (interest) costs - would not be impacted despite the downgrade.

Actions such as those by S&P signal to international lenders that the risk associated with lending to the Bahamas has increased, inducing them to demand higher interest payments from this nation.

That, in turn, would threaten to suck much-needed funds away from areas vital to the Bahamian people, such as the police, health, education and social security, and potentially plunge this nation into an ever-widening vicious circle of higher taxes to fund increased debt payments.

“It blows a hole in the projection we had with respect to a balanced Budget any time soon,” Mr Turnquest told Tribune Business of S&P’s action.

“But it is also very concerning to us in throwing out the ability to invest in turning this economy around. We hope, as they say, to get a handle on this Baha Mar situation, and we have to look for additional investment to counter any effects that linger as result of that.”

Emphasising that it was vital the Baha Mar dispute be resolved rapidly, Mr Turnquest said the S&P move suggested that a full economic recovery will now take even longer to emerge, and that GDP growth projections would be missed in the short to medium-term.

“The Government has to get serious about some issues, the primary one being the cost of energy,” Mr Turnquest told Tribune Business. “The $100 million invested in new planes for Bahamasair is also an interesting one at this time.

“We have a lingering problem with Bank of the Bahamas. What is happening to Bahamas Resolve; are we making progress with that? Then National Health Insurance (NHI) is coming on at the beginning of next year. All of this will have a negative effect on the labour and jobs market.”

Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, last night said S&P’s emphasis on Baha Mar’s short-term woes in making its downgrade decision was “misplaced”.

He told Tribune Business that the Chamber, which met with S&P analysts when they visited the Bahamas last month, had argued that they were placing too much emphasis on the Baha Mar dispute because its opening impact was not factored into this year’s GDP growth and fiscal forecasts.

“While there’s certainly jeopardy in that being opened by January, given the wrangling in court as well as the inability to negotiate an agreement between the parties, their over-emphasis was misplaced as the fiscal projections were not banking on Baha Mar’s outturn,” Mr Bowe told Tribune Business.

“S&P have placed greater emphasis on Baha Mar’s immediate challenges rather than factor in the true impact to the fiscal projections.”

He added that the $3.5 billion project would have been “a boost, not a stabiliser” for the economy and the Government’s finances had it opened as planned.

Mr Bowe said the S&P action, and recent rhetoric among the parties involved in the Baha Mar dispute, reiterated that it was a situation where all sides needed to “air their dirty laundry in-house” rather than through the media.

“Our policymakers and leaders have to bear in mind that whenever there are certain comments to be made in meetings or negotiating settlements, when they leave that setting they have to be very guarded in their public response so that the solution is not worked out through public opinion but negotiated in the Boardroom,” he told Tribune Business.

“There’s a saying that businesses make strange bedfellows. We may not socialise after doing business, but this is the time to focus on Baha Mar and getting it open.”

The Government, for its part, suggested that S&P should have given it more credit for Value-Added Tax (VAT) and implementing its fiscal reform package.

It also implied that the rating agency should have interpreted the two percentage point rate cut in May’s unemployment rate as a sign the economy was improving.

“While Standard & Poor’s has given the Government some credit for its fiscal reform programme, it should have also affirmed that the achievements are forecasted to cause a reduction in the debt burden in the near term,” the Ministry of Finance said in a statement last night.

“The IMF, in its most recent Article IV report, has noted that progress with reforms has outperformed its own expectations. S&P’s projections still show increases in the debt burden in the immediate years ahead when the Ministry of Finance’s forecast is for reductions to begin to set in. This outlook continues to be credible.

“The Government’s ability to raise funds on more favourable terms both internationally and domestically than in the recent past reflects the success of the fiscal strategy. In addition, the Government has been careful to tie its recent foreign currency borrowings to specific projects, such as the acquisition of vessels for the Royal Bahamas Defence Force and airplanes for Bahamasair. In both of these cases the borrowing has been accessed at very favourable terms.”

Expressing hope that the Supreme Court would speed up a Baha Mar resolution by ruling in favour of its winding-up petition, the Ministry of Finance added: “The Bahamian real economy has improved, with the latest figures for the May jobs survey showing a two percentage point drop in the unemployment rate.

“This would support our view that the real economy and consumption, which is the primary driver of domestic demand, has expanded. The Ministry of Finance is therefore confident that the economy is on track for recovery, supported by other reforms that will stimulate increased private sector activity.

“Indeed, a strategic framework is being put in place, in partnership with Power Secure, to tackle the high cost of electricity, and progress is imminent on initiatives to improve domestic credit conditions and boost confidence in the residential mortgages market.

“Again, the Bahamas continues to make progress on the fiscal front. The Government, while being patient, will redouble its efforts to sustain improvements in this area, and advance reforms to bolster private sector confidence over the medium-term.”