WHAT a gift to be dropped into The Bahamas’ Christmas stocking a mere five days before Christmas!
It was announced yesterday that The Bahamas’ international credit rating has been downgraded to junk status.
“The international credit rating agency S&P, today, downgraded The Bahamas’ credit rating, from BBB- to BB+, although upgrading the outlook from negative to stable,” government announced in a press release yesterday. “Other countries,” it said, “rated BB+ include Indonesia, Portugal, Russia and Bulgaria. In its statement, S&P noted that this rating decision stems from lower than expected GDP growth, fiscal consolidation results that are developing at a slower pace than anticipated and certain structural weaknesses that negatively impact economic growth.”
No wonder government has expressed disappointment in this development. Able to sweet talk Bahamians into a lethargic state of hope, it has had no such luck with S&P’s rating experts. Government said it was of the view that “S&P’s decision does not give appropriate weight to important developments on the ground, nor The Bahamas’ strong commitment to address its economic and fiscal challenges.” This is the comforting talk that has lulled Bahamians into self-satisfied expectations, but S&P cannot be fooled. The promises have gone on too long — with the promised “important developments” gradually disappearing over the horizon. Even Bahamians are awakening to the fact that our beloved country is in plenty of trouble and in five months we have to make drastic decisions or drown in our own folly.
According to government “The Bahamas’ short to medium-term prospects for placing the economy on a stronger growth trajectory are more encouraging than they have been since the recent economic and financial crisis, and it is most unfortunate that S&P did not seem to fully consider the impact of the many growth generating initiatives underway.”
Government saw “no uncertainty regarding the restart and completion of the Baha Mar project which, alongside the other foreign investment-related projects underway, will help to ignite growth, boost employment, improve business and consumer confidence and contribute to government revenue.”
According to government, the “facts are compelling that The Bahamas remains an attractive jurisdiction for foreign investment”.
However, this is not what we hear. Investors – both Bahamian and foreign –complain that the Bahamas is not an easy jurisdiction in which to do business.
In October this year, Tribune Business Editor Neil Hartnell reported that the Bahamas was “perilously close to dropping into the bottom third of the World Bank’s ‘ease of doing business’ rankings, after the country was ranked 121st out of 190 nations when it comes to facilitating private sector activity…
“And the reason for The Bahamas’ slump was made abundantly clear, the World Bank stating bluntly: ‘The Bahamas made paying taxes more complicated by introducing a Value-Added Tax.’
“It estimated that Bahamian VAT registrants, on average, spent about 157 hours per year - equivalent to almost 20 working days - calculating, collecting, filing and remitting the tax’s payments to the Government.”
The World Bank also noted the difficulty with dealing with construction permits; getting electricity; getting credit; and protecting minority investors. The Bahamas fell in the rankings by between one to six spots, it said.
“The World Bank’s report again indicated that The Bahamas continues to ‘stand still’, while rivals make improvements and leapfrog ahead of it on regulatory efficiencies and systems - key determinants in attracting capital investment,” Tribune Business reported.
The report continued: “While the rate of slippage has slowed, the World Bank has again dropped The Bahamas’ ranking, sending a potentially negative message to international investors assessing whether to deploy their capital in this nation.
“And, yet again, the findings suggest that repeated promises by Prime Minister Perry Christie, and several of his Cabinet Ministers, to improve the ‘ease of doing business’ in The Bahamas continue to sound somewhat hollow.
“The Bahamas was initially ranked at 106th in last year’s ‘Doing Business’ rankings, but the World Bank yesterday said ‘data revisions and changes in methodology’ had subsequently dropped this nation even further - to 120th spot.” That statement was reported in October.
And this was Moody’s assessment in August:
“Structural constraints that limit potential growth include relatively high energy costs, a bureaucratic burden that hinders doing business and labour market rigidities. These constraints are reflected in, for example, the prevalent high rate of unemployment and non-performing loans in the banking system, and have also negatively affected the competitiveness of the tourism sector – a mainstay of The Bahamas’ economy – that accounts directly and indirectly for about 50% of GDP,” it said. “While authorities have implemented some measures to address these issues and have put forward a pro-growth reform agenda via the National Development Plan, progress has been slow so far.”
Given those issues, Moody’s said it considered that The Bahamas’ economic strength will remain “low” – the lowest score among Baa-rated sovereigns which have an average score of “moderate”.
On the debt issue, Moody’s noted that while government has reduced the fiscal deficit for three consecutive years, the government debt to GDP ratio continued to rise to an estimated 66.1% by the end of 2015/16, from 60.2% in 2013/14.
Despite all of the negativity, a hopeless government drowning in rising debt, has expressed confidence that “as S&P monitors the impact of these various macro-economic and fiscal measures and projects over the next six to 12 months, the Government is confident that The Bahamas will be able to secure an improved rating outcome.”
Unfortunately, government has promised this for too long for Bahamians to put much faith in it. In five months, voters will have to decide their future. More and more Bahamians are saying they have lost faith in their government. It is hoped that members of the Opposition can now put their selfish personal ambitions aside and come together to rescue the nation.
This is the gift that all Bahamians now desire. They not only want to secure their future, but that of their beloved country.