The Tribune

The Bahamas’ debt-to-GDP ratio is expected to hover near the IMF”s 70 per cent ‘danger threshold’ in 2016, although an international credit rating agency believes it has “stabilised”.

Moody’s, in its latest assessment of Caribbean sovereign credit ratings that was published on Wednesday, said the tourism recovery and lower oil prices were helping to stabilise the fiscal metrics for the Bahamas and numerous other nations.

The Bahamas remains among seven regional nations with ‘stable’ outlooks from the credit rating agency, helping to support a ‘Baa2’ rating that is currently two notches above ‘junk status’.

Moody’s, based on the report obtained by Tribune Business, is projecting that this nation’s debt-to-GDP ratio will fall from its current 73 per cent peak to around 65 per cent in 2016.

“Belize, the Bahamas and St Vincent have substantial debt burdens which are expected to average 70 per cent of GDP in 2016,” Moody’s said.

“While the Bahamas and Belize have seen their debt levels stabilise, St Vincent’s remains under pressure given fiscal deficits averaging 4.5 per cent since 2013, and a debt burden that has yet to peak.”

Moody’s report matches the Central Bank of the Bahamas’ annual report in suggesting that this nation’s debt-to-GDP ratio, and total $6.2 billion debt level, have now peaked.

Tribune Business revealed earlier this month how the Bahamas’ debt-to-GDP ratio had breached the so-called 70 per cent ‘danger threshold’ at year-end 2014.

The regulator, in its 2014 annual report, revealed that the $6.248 billion national debt was equivalent to 73.4 per cent of Bahamian gross domestic product (GDP) at December 31.

This puts the Bahamas’ national debt above the 70 per cent benchmark, which the International Monetary Fund (IMF) has previously described as the threshold where countries are in increasing danger of losing control of their financial affairs and sovereignty.

It is also a point where increasing amounts of government revenue are sucked away from public services to pay debt servicing costs, potentially trapping countries into a debt spiral.

The Bahamas has now entered this dangerous territory, but the Central Bank predicted it will not be here for long. And Moody’s seems to agree, judging by the analysis contained in its report.

However, the credit rating agency appears to have missed entirely the delayed opening of the $3.5 billion Baha Mar resort, and the disputes that have caused this.

Baha Mar’s economic impact is crucial to the Bahamas’ 2015, and short-term, growth forecasts, and lower-than-expected GDP expansion will have consequences that manifest themselves in higher debt ratios.

Still, Moody’s struck a mildly positive tone due to the anticipated impact that the combination of a tourism rebound and lower oil prices will have on the Bahamas and other tourism-driven economies.

“The 2014 rating momentum for the Caribbean was negative. Five out of the 11 countries rated by Moody’s in the region were downgraded last year, constituting the bulk of the eight sovereigns that were downgraded in the Latin American and Caribbean region - the highest number in more than a decade,” Moody’s said.

“This negative trend contrasts with the overall positive ratings momentum globally in 2014, where upgrades outweighed downgrades. Rating downgrades in the Bahamas, Barbados, Bermuda, Cuba and St Vincent and the Grenadines accounted for a third of all Moody’s sovereign downgrades last year.

“In 2015, the rating momentum for the Caribbean will be more stable, albeit with limited upward rating pressures over the next 12 to 18 months. Seven sovereigns - the Bahamas, Belize, Bermuda, Cayman Islands, Cuba, Dominican Republic and St Maarten - carry stable outlooks.”

Moody’s said Caribbean economic growth was expected to average 2 per cent in 2015, a figure that it predicts the Bahamas will match (probably before factoring in Baha Mar.

It added that the Bahamas was among the regional economies set for “faster growth, lower inflation and stronger external positions”.

Apart from predicting that economic growth rates in the Bahamas will double year-over-year, from 2014’s 1 per cent to 2 per cent, Moody’s sees the Government’s primary deficit falling from 2.9 per cent to just 1 per cent.

It is also forecasting that the Bahamas’ current account deficit will shrink from 21.9 per cent of GDP to 15.2 per cent, with this nation’s so-called ‘external vulnerability indicator’ dropping from 46.2 to 19.1.