S&P downgrade a ‘wake-up call’

As of Wednesday, November 18, 2015

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

The Central Bank’s governor yesterday said Standard & Poor’s (S&P’s) August downgrade of the Bahamas’ sovereign credit rating to one notch above ‘junk’ status was “a wake up call”, not a “seismic event”.

Wendy Craigg argued that many Caribbean countries had been dealt even lower ratings, and said: “There are many countries that are lower rated than the Bahamas, many countries, and they still are able to source investments, but it is at a higher rate of interest.

“In our case it is more concerning if the issues are not addressed. We should look at this as a wake-up call. We have an opportunity to do things to fix the situation.”

Mrs Craigg added that the GDP growth outlook for most countries in the region, including the Bahamas, was now below 2 per cent.

“What is important now is for us to achieve stability in the ratings,” she added. “Because we have a negative outlook we need to be able to show in a short period of time that we can get back up to at least stable.”

Mrs Craigg said that while tourism helps to grow the economy, the sector today is not going to give the Bahamas the ‘dynamic growth’ it needs.

“We are faced with increasing competition in tourism so we have to enhance the product, perhaps event tourism, medical tourism, something else to lift the growth rate, because sun, sand and sea will not provide the dynamic growth rate we are looking for,” she added.

Mrs Craigg said S&P and Moody’s account for 80 per cent of all credit ratings while addressing a Bahamas Institute of Chartered Accountants (BICA) seminar.

She added that the Bahamas has seen three downgrades from S&P, the most recent coming this year. In August, S&P cut the sovereign rating to ‘BBB-/A-3’ from ‘BBB+/A-2’, and warned of “depressed growth” due to a combination of the Baha Mar dispute and long-term structural weaknesses in the economy.

Likewise, the Bahamas has been downgraded by Moody’s twice, the latest in 2014 when it changed the country’s credit rating from ‘Baa2’ from ‘Baa1’.

“Just looking at the trend, we have had a relatively strong rating profile throughout the financial crisis. All of the downgrades to-date have been within the investment grade tranche and rather gradual,” Mrs Craigg said.

“There has been no ‘two notches’ downgrade. Most of the changes have been attributed to the changes in the fiscal position and increasing debt levels.

“We are susceptible by nature to global shocks because of our heavy dependence on tourism and foreign direct investments, so what you would find is a slowdown in the global economy would have implications for economic growth and the ability of the Government to have revenue sustainability.”

Mrs Craigg added that while credit ratings are essentially opinions and judgments, they carry considerable weight.

“At the end of the day, what an investor gets is low cost information for making decisions relative to risk. The sovereign rating facilitates them being able to make a comparison between different investments,” she explained.

“It determines the ability of investment for being included in a portfolio. It’s to really enhance the access to private capital markets and really benefit from lower debt instruments and interest costs. What you find is that the higher the rating, the lower the perceived investment risk and the lower the borrowing cost.”

Well_mudda_take_sic 8 years, 5 months ago

Wendy Craigg has been nothing more than a puppet of the failed policies (and corruption) of Ingraham and now Christie. Her failure to provide leadership as Governor of the Central Bank has resulted in hard working honest Bahamians having to foot the bill for about $500 million (half a billion dollars) of losses and lost value at Bank of The Bahamas. This woman has been nothing but a costly abject failure for the Bahamian people; she should have long ago been forced to resign and hang her head in shame. The fact that she will be collecting a pension upon her retirement is beyond comprehension given the role she has played in building the mountain of debt hanging over our country today. Her pension should be clawed back in its entirety as partial recompense to the Bahamian people for her dismal failure in protecting the value of our Bahamian dollar!

SP 8 years, 5 months ago

............................................... BREAKING NEWS ....................................................

The Central Bank’s governor Wendy Craigg shows signs of life and might have woken up !

asiseeit 8 years, 5 months ago

"Wendy Craigg argued that many Caribbean countries had been dealt even lower ratings, and said: “There are many countries that are lower rated than the Bahamas, many countries, and they still are able to source investments, but it is at a higher rate of interest." What is it with Bahamian officials that whenever they are faced with bad news, a warning, they always point their fingers like third graders and say, "well they did it so we can too". No that is not what a professional adult does, if confronted with a bad review or a situation that just stinks what they should be saying is this. "We know that this situation is not in the countrys best interest and we are doing everything we can to make sure it never happens again." No not our superior supposed leaders, they take the low road. Is there any wonder most right thinking Bahamians think our supposed leaders are nothing more than human sphincter muscles.

Economist 8 years, 5 months ago

A down grade to "junk bond" status by one rating agency could spell trouble; a down grade to junk bond status by all three would be a disaster.

Her pension would be under sever pressure if all three down grade to Junk bond status, indeed she might find that she has no pension.

It seems that only a few people truly understand the devastating consequences. The Bahamas would be at the mercy of the IMF etc. like Greece. That is a fact, not a guess.

We must all pray the Baha Mar gets going as soon as possible.

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