The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Standard & Poor’s (S&P) yesterday said that while the Bahamas had taken “a great first step” towards fiscal reform with Value-Added Tax (VAT) implementation, any improvement in this nation’s credit rating depended on successful execution.

Dr Lisa Schineller and Julia Smith, respectively S&P’s outgoing and incoming lead Bahamas analyst, said there was “no set deadline” for taking further action over the Bahamas’ sovereign credit rating, indicating this nation still has ‘breathing space’ in which to reverse its fiscal slippage.

The pair, in a conference call with Tribune Business, emphasised that a fiscal turnaround had to combine with economic growth to reverse the Bahamas’ fortunes - and improve a credit rating that continues to hover two notches above ‘junk’ status.

Ms Smith described 2015 as ‘a very important year” for the Bahamian economy, given that events over the next 12 months will play a major role in shaping this nation’s short and long-term future.

Apart from VAT, the Bahamas will also witness Baha Mar’s opening and the hoped-for stimulus this will bring in terms of increased employment and economic activity.

Besides these two, there is also the prospect of energy reform and cellular/mobile liberalisation, the latter introducing competition for the first time, plus the completion of World Trade Organisation (WTO) accession negotiations. All three initiatives are critical to positioning the economy for the medium to long-term.

Dr Schineller and Ms Smith concurred with this assessment, with the latter also suggesting that the dramatic global oil price fall could offset VAT’s inflationary impact.

“VAT is in place, and it was key that it was implemented,” Dr Schineller told Tribune Business. “It’s great that it’s in place and moving forward.

“We want to see how it’s being executed, what the uptake from it is. Obviously the revenue take from it will be a key component. One of the key things we will be looking at is the yield from the VAT in the coming months. We’ll be watching how the implementation of VAT goes.”

Dr Schineller acknowledged that it was too early to determine whether VAT will hit the Government’s target revenue forecasts, which currently project it will generate $400 million in the upcoming 2015-2016 fiscal year - its first full year in operation.

She added that S&P will assess next month’s Mid-Year Budget to get a sense of how the Government’s finances are performing, its spending plans for the remainder of the year and its revenue/expenditure execution to-date.

“The mid-year Budget is something that we’re going to be looking at. It’s in the broader context of fiscal execution and prospects for VAT collections,” Dr Schineller told Tribune Business.

“It [the mid-year Budget] gives you quite a good view of where things stand, and it’s to get a signal of what other adjustments they may be thinking.... We want to get an idea of where they see the risks in execution.”

Ms Smith said the Bahamas needed to “complete the full tax cycle” with VAT, confirming S&P will be watching closely to see if the Government hits a revenue take equivalent to its 3 per cent of gross domestic product (GDP) target.

“It’s a little hard to determine how they’re doing in terms of turning around the fiscal trajectory,” Ms Smith said of the Christie administration.

She added that Baha Mar’s impact, and overall economic growth, were vital components to stabilising - then improving - the Bahamas’ sovereign credit rating.

“It will also be important to see how the Government may be adjusting their [VAT] targets as time goes on,” Ms Smith added.

“I think it will be a very important year for the Bahamas, and at this point it’s too early to see what type of impacts these things will have - VAT, Baha Mar and energy prices.

“I know some people are a bit scared about the inflationary impact of VAT, so energy prices may counter-balance some of that.”

The S&P duo said that while there was no firm timeline for when it would take further action over the Bahamas’ sovereign credit rating, it will be monitoring this nation closely throughout 2015.

“There’s no set date for any action to be taken,” Ms Smith told Tribune Business.

And Ms Schineller added: “We will see what the progress is over the coming months; this Budget cycle, the results on the revenue and expenditure side; and prospects for Baha Mar. These are all components.”