The Tribune

The Government yesterday asked Moody’s to ‘take a bet’ that its economic growth and Budgetary initiatives will succeed, as a well-known fiscal hawk said: “They’re not going to have to face the music.”

Rick Lowe, an executive with the Nassau Institute think-tank, told Tribune Business that the “political class” would likely escape the consequences for both parties’ involvement in pushing the $6.6 billion national debt towards unsustainable levels.

“The Government has got itself and the Bahamian taxpayer in a real pickle,” he said. “These guys that have run up this debt and stuck us with it, they’re not going to have to face the consequences when the worst case scenario happens, because they’ve not brought their spending under control.

“They’re not going to have to face the music, the political class that has done this to us.”

Mr Lowe said the Bahamas’ economic and fiscal situation was “getting scarier by the day”, after Moody’s on Friday threatened to downgrade this nation’s sovereign creditworthiness further.

With the credit rating agency not ruling out the loss of the Bahamas’ investment grade rating via a downgrade to so-called ‘junk’ status, Mr Lowe said the development confirmed what the Nassau Institute had been warning about for more than a decade.

“The Nassau Institute has been suggesting all along that if they [the Government] didn’t control their waste and their spending, and bring it to where it needs to be, this day would come,” he told Tribune Business.

“It took a bit longer than anticipated, but we’re there now and we still don’t have an answer from the Government on how they’re going to turn this around.”

Mr Lowe queried why the Government had not seen fit to address the Bahamian people on the issue, given its potential negative impact.

“They gloss over things in Parliament as far as Bahamians are concerned, but they’re under scrutiny,” he said.

“I’m surprised there’s not a huge flight of capital at this stage, how it’s coming out. I don’t think we can avoid a downgrade, do you? We’ll have to deal with the fall-out.

“We knew this day was coming if they didn’t change course, anticipating growth that never came in. We’re in the mess we’re in because they didn’t plan or take heed.”

The Government, in its first official response to the Moody’s threat, albeit four days later, implied that its strategy to ward off a further downgrade will rely on persuading the rating agency that it will execute on its strategies.

The Christie administration’s economic growth and fiscal consolidation policies are now effectively on trial, and being put to the test, by Moody’s, who will need convincing that these will work and that the Government is capable of delivering on them.

The Government, in its statement, said that 77 cents out of every $1 in new revenue raised since 2013 had gone to debt servicing. That, though, indicates the huge costs (more than $260 million annually) involved in servicing the national debt, and raises questions about why the latter is still growing and why the GFS deficit is not being eliminated more quickly.

The Christie administration also touted a reduction in “operating expenditure” since 2013, even though the Government’s recurrent costs are projected to rise by $166 million in the 2016-2017 fiscal year.

It pointed to the Bahamas’ “favourable debt profile”, illustrated by the “uniform maturity schedule” and the fact that more than three-quarters, 76 per cent, is held by locally-based investors.

“The rate of growth of government debt has declined steadily over the past three years, and with recent revenue enhancement measures and expenditure control efforts, it is expected that the increase in debt will halt and the level of government debt will begin to decline in absolute terms by 2018-2019,” the Government said.

It will also point to the introduction of Value-Added Tax (VAT) to offset Moody’s concerns that the Government continues to miss its fiscal and Budget targets, and the national debt is still rising.

“The decision to place the ratings on review was prompted by the continuing rise in risks to the country’s medium-term economic prospects and to its fiscal strength, notwithstanding the Government’s ongoing fiscal consolidation programme,” Moody’s said on Friday.

“The review will allow Moody’s to assess the likelihood that economic growth prospects will improve, debt metrics will stabilise and government policy will effectively address its macroeconomic and fiscal challenges.”

Still, the Government said it was “confident that this review will reveal that medium-term economic prospects for the Bahamas are good, given projected foreign direct investment, the Government’s fiscal consolidation efforts and the implementation of innovative policy initiatives with respect to certain structural constraints the country has traditionally faced in the energy sector and labour market”.

Many of these initiatives, though, are still in the ‘pipeline’ or early stages of implementation, and have yet to deliver the anticipated results.

The Government also appears to be placing significant weight on positive developments with the $3.5 billion Baha Mar project, an outcome that is again far from assured.

“Growth prospects for the Bahamian economy are also very good with the imminent restart of construction at Baha Mar and its subsequent opening,” the Government said.

“In addition, challenges within the energy sector are being addressed by the new private sector management team at Bahamas Power and Light, and the benefits of this will be realised in the short term.”

The Government is also falling back on foreign direct investment projects, arguing that they are producing “significant economic activity”, even though few have yet to materialise.

Trying to explain this away, it said: “While the archipelagic nature of the Bahamas at times creates a lag in economic activity in the Family Islands being reflected in official statistics, there is no question that the level of real economic activity in much of the major islands of the Bahamas is much higher than it was three years ago.

“The Government has also strategically entered PPPs to deliver growth enhancing infrastructure in New Providence and the Family Islands to support economic growth.”

These PPPs, again, were not identified.