Standard & Poor’s (S&P) says the delayed Baha Mar opening has eliminated any chance that it will raise its ‘negative’ outlook on the Bahamas, as it prepares to “revise downwards” growth estimates for this nation.
Julia Smith, S&P’s lead Bahamas analyst, told Tribune Business that the Baha Mar situation was “definitely not a positive development” for job creation or the Government’s fiscal position.
She added that while S&P had yet to make any official changes to its 2015 projections for the Bahamian economy, it was almost certain to cut its 2.3 per cent GDP growth forecast.
The only positive development for the Bahamas was Ms Smith’s indication that S&P is unlikely to cut this nation’s sovereign credit rating, which is currently hovering two notches above ‘junk’ status, yet.
Ms Smith hinted that S&P would wait until its July visit to the Bahamas before taking any such decision,as it would then get “a better idea” of how the Baha Mar opening delay was impacting all aspects of the economy.
“The big question when it [Baha Mar] will actually open. As far as I can tell, there’s no set date for the opening,” Ms Smith told Tribune Business.
“We were assuming it would have a soft opening in Spring, and then a full opening later in the year, but it seems that is not going to happen any more.”
She added: “Our current real GDP growth forecast for 2015 [for the Bahamas] is 2.3 per cent.
“We haven’t made any official changes to this yet, but this delay will have a negative impact to this forecast and we may have to revise it downwards.”
S&P’s growth slash, though disappointing is hardly unexpected. The Central Bank of the Bahamas itself has effectively written off any economic stimulus from Baha Mar for the first three quarters of 2015, while Robert Myers, former Bahamas Chamber of Commerce and Employers Confederation (BCCEC) chairman, believes the delayed opening could shave up to 50 per cent off economic growth projections.
Baha Mar, and its Izmirlian family principals, have currently gone ‘above and beyond the call of duty’ by keeping their 2,000 staff on payroll - and avoiding redundancies - as they attempt to get construction back on track.
Ms Smith questioned “how long they can keep that up” without resorting to lay-offs, adding that “a protracted delay might become more of an issue”.
Baha Mar and its main contractor, China Construction America, have been attempting to resolve their differences for several weeks, yet no solution has been found. This has brought work on the $3.5 billion Cable Beach development to a standstill.
“We were kind of looking for, once Baha Mar opened, to see whether it did bring more economic growth to the country with subsequent fiscal and external spillovers,” Ms Smith told Tribune Business.
“It’s not only an issue about growth, and it’s not a positive development for those elements as well. The exact effects on growth, and the Government’s finances and the external accounts, remain to be seen.
“Any of the increase in tourist arrivals, and consequent spending by tourists, that were part of what we assumed would come about with the opening of Baha Mar has been pushed back.”
S&P’s ‘negative’ outlook on the Bahamas emphasises that the risks to this nation’s sovereign credit rating remain tilted towards the downside.
And Ms Smith said any possibility of an improved outlook, ‘stable’ or ‘positive’, had effectively been negated by the Baha Mar situation.
“It’s safe to say that we will keep that [negative] outlook on for now, especially given this delay in opening Baha Mar,” she confirmed.
The only comfort for the Government, and wider Bahamas, is that S&P appears to be in no rush to take any further action on the sovereign credit rating.
This is the key indicator, as a further downgrade would potentially impede the Government’s access to international capital markets and raise its borrowing costs, thus threatening to siphon more revenues away from public services and towards debt servicing.
“We could review the rating at any time, if we think certain events and developments that happen make it worth reviewing,” Ms Smith said. “Our annual visit is scheduled for July, and that will give us a better insight with what’s going on in the economy.”
She added that Baha Mar’s delayed opening meant that pre-existing questions, such as whether it would grow or split the market for high-end visitors with Atlantis, remain unanswered.
“We weren’t necessarily expecting it to be a huge positive force for the economy right away,” Ms Smith said of Baha Mar.
“We wanted to see what kind of growth it would bring to the country. It wasn’t necessarily our base case scenario that there would be this huge, positive impact on tourist arrivals. We wanted to see the relationship between Atlantis and Baha Mar.”
Still, Ms Smith said it was impossible to determine when - and whether - Baha Mar would have a positive effect on the Government’s financial position.
“This was definitely something the Government was kind of expecting to be a boost to the economy,” she told Tribune Business. “I think we still have to see when it actually opens and, once it does, will it bring in the tourists they are expecting.”