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Moody’S Now Challenges Govt Over Debt Ratios

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Moody’s is now questioning another key fiscal projection by Prime Minister Perry Christie’s government, warning that the Bahamas’ uncertain outlook makes it hard to forecast how high - and when - the debt-to-GDP ratio will peak.

The rating agency, which is threatening to potentially downgrade the Bahamas’ sovereign creditworthiness to ‘junk’ status by end-August, also joined calls for the Government to “rein in” its spending.

Providing more detail on the areas it will assess to determine if another Bahamas downgrade is warranted, the New York-based credit rating agency also plans to examine whether further revenue measures are needed to boost fiscal consolidation.

Moody’s latest issues and concerns were detailed in a July 5, 2016, missive released to the international capital markets some four days after announcing it was placing the Bahamas’ sovereign rating under a two-month review.

The ‘credit opinion’ indicates it has clearly taken note of the major revision to the Government’s 2014-2015 fiscal year performance, where initial estimates of a $198 million deficit ended up a year later at $381 million.

This was a near $200 million ‘difference’ that placed the 2014-2015 deficit some $95 million above the $286 million ‘target’ for the year, a development that threatens to undermine trust and confidence in the Government’s numbers.

The implications have not escaped Moody’s, which said: “On the fiscal front, during the presentation of the 2016-2017 Budget, the fiscal deficit for 2014-2015 was revised to 4.4 per cent of GDP from a previous estimate of 2.3 per cent.

“This was due to a revision of expenditures, which were increased by 1.6 per cent of GDP, while revenues were 0.5 per cent of GDP lower than previously estimated. Authorities estimate that the fiscal deficit in 2015-2016 came at 1.7 per cent of GDP.”

The latter projection has yet to be confirmed or tested, and Moody’s queried another of the Christie administration’s fiscal assumptions - namely whether the Government’s direct debt-to-GDP ratio “peaked” during the recently-closed 2015-2016 fiscal year.

The rating agency explained that the increasingly uncertain GDP growth and economic outlook made it virtually impossible to determine when the Bahamas’ debt-to-GDP ratio will peak, and at what level.

“In terms of debt dynamics, the Government’s debt-to-GDP ratio reached 64.4 per cent in 2014-2015, up from 60.2 per cent in 2013-2014, and we estimate it rose to 65.2 per cent in 2015-2016,” Moody’s said on July 5.

“While the rate of increase in the debt ratio is slowing, and despite the authorities’ continued fiscal consolidation efforts, it is difficult to assess at what level - and when - this ratio will peak, given the uncertainty on the economic outlook.

“Consequently, during the review, Moody’s will examine the macroeconomic and fiscal conditions that would support the stabilisation of the Government’s debt metrics.”

Moody’s analysis contrasts sharply with the Prime Minister’s optimism during the 2016-2017 Budget communication, when he forecast that the Government’s direct debt-to-GDP ratio had already peaked.

“The ongoing rise of the Government debt burden will be arrested and the ratio of debt to GDP will decline to 64.1 per cent in 2016-2017, down from the peak of 64.6 per cent in 2015/16. It will fall steadily, thereafter, to stand in the area of 59 per cent in 2018-2019,” Mr Christie forecast.

However, Moody’s latest data predicts that the Government’s direct debt-to-GDP ratio (excluding contingent liabilities such as loan guarantees) will actually increase over the same period, rising from 65.2 per cent in 2015-2016 to 65.8 per cent in the current fiscal year.”

And, while predicting that the debt-to-GDP ratio will continue to climb, moving in the opposite direction to the Government’s numbers, Moody’s also wants to closely examine the Government’s plans to contain spending.

“Moody’s will also assess the Government’s plans to rein in expenditures over the medium-term and what, if any, additional revenue measures may be implemented to further support the fiscal consolidation efforts,” the rating agency added.

It thus adds its weight to both the Central Bank of the Bahamas and the private sector, which have both suggested that the Government needs to do more to contain recurrent (fixed cost) spending.

The Government’s recurrent spending is set to increase by 7.7 per cent year-over-year in 2016-2017, rising by $166 million from $2.155 billion to $2.321 billion.

However, it is projected to fall to $2.302 billion in 2017-2018, and $2.262 billion in 2018-2019, in line with Prime Minister Perry Christie’s pledge to reduce recurrent spending as a percentage of GDP.

Still, Moody’s added: “We assess the Bahamas’ fiscal strength as ‘low’, owing to its relatively high debt burden – partially offset by moderate debt affordability, a captive domestic investor base, and a favourable maturity profile.

“The debt-to-GDP ratio exceeds the ‘Baa’ median (42 per cent), having more than doubled over the last decade to an estimated 65.2 per cent by the end of 2015-2016.

“Government interest payments relative to revenues have also increased to an estimated 13.8 per cent in 2015-2016 from less than 10 per cent in 2007-2008, suggesting a somewhat limited fiscal space compared with that of most peers. The Bahamas has the lowest fiscal strength score among sovereigns rated ‘Baa’.”

This helps to explain Moody’s rationale in assessing whether to downgrade the Bahamas from its current ‘Baa2’ sovereign rating.

The rating agency also pointed out that the Bahamas’ had achieved an average GDP growth rate of 0.3 per cent between 2011-2015, lower than its prior estimate of 1 per cent.

Moody’s added that this was based on November 2015 data, again indicating how taken aback it was by Department of Statistics numbers, published earlier this summer, showing that the Bahamian economy had endured two consecutive years of recession during 2014 and 2015.

“The Bahamas’ economy is the second smallest in the ‘Baa’ category and has managed average growth of just 0.2 per cent in the last four years,” Moody’s said.

“For 2016 and 2017, we expect growth to remain below the economy’s potential growth rate of 1.5 per cent, after which economic performance could be boosted depending on the opening date of the Baha Mar resort.

“Over the medium term, structural rigidities in the energy sector and labour market, as well as ease of doing business, may constrain growth to rates closer to 1.5 per cent.”

Moody’s is also projecting lower GDP growth rates than the Government, pegging economic expansion at just 0.3 per cent and 1 per cent for 2016 and 2017, respectively, compared to the Christie administration’s estimates of 0.7 per cent and 1.6 per cent.

It reiterated that the Bahamas’ GDP growth rate will remain “at this relatively low level over the medium-term unless several structural rigidities, including the efficiency of the energy sector, high levels of unemployment and a bureaucratic burden that thwarts ease-of-doing business, are addressed”.

Comments

watcher 3 years, 10 months ago

If it's a question of believing either government's data, or Moody's, I know which side I'd choose. Government has been trying to fool us for so long that they think they can pull the wool over the eyes of true fiscal experts.

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Sickened 3 years, 10 months ago

Rein in spending?!?!?!? Government needs to rein in its stealing.

If the PLP would only steal what's left over after all expenses were paid it wouldn't be so bad, as at least we would have a balanced budget. But, by taking their share first as well as on top of all issued contracts, there is always a deficit left. Perhaps they are getting kick backs on borrowings as well???

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bogart 3 years, 10 months ago

BOB - Response letter Annual Report 2012 To the Central Bank of the Bahamas

last paragraph..."we are satisfied that the Bank is 'In-Control' with no material reservations.'"

Where is the consultant George Marlette's Report on BoB?

How can this Bank in default of International CB's standards still compete with the other Banks following the Rules? Unfair competition affecting the other four who spend money to advertise, compete and pay salaries. Heads must be de-risked for this fiasco.

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John 3 years, 10 months ago

Government is even setting to do more damage and make a worse situation worse. They are now charging a $100 late fee on business license plus interest on what is due. This is not just a simple 'ok just pay it' as it seem. Some businesses are not making a profit. Some have been operating in the red for several years. So they scrap up some money to bring their national insurance up-to-date. Then they have to renew their garbage collection contract and pay their property taxes. Then when they get to bus license the government slaps a $100 fine on them plus interest. So there is definitely no incentive for these businesses who are losing money to try fight it out. So as they close down governmet revenue will also go down. Unemployment will go up and so will crime. So the national debt will increase and so will deficit spending. This government has its shoes on backwards because it is definitely walking in the wrong direction

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Honestman 3 years, 10 months ago

The "chickens are coming home to roost" as all savvy Bahamians knew they would. Anyone who voted PLP at the last election cannot complain.

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Well_mudda_take_sic 3 years, 10 months ago

FNM would be no different than PLP as we have seen time and time again. In fact, a FNM government led by Minnis as PM would be tyranny and anarchy at its worse for the Bahamian people. The DNA under McCartney is a non-starter for too many reasons to elaborate on here. If a reputable competent independent candidate is running in your constituency come the next election, you would be wise to vote for him or her. Otherwise it would be better to just stay at home and not vote at all. We need to take our country back from the type of politics practiced by the PLP and FNM alike; the politicians of yesterday are all about themselves and their elitist political friends and business cronies.....they could not care less about the Bahamian people!

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Honestman 3 years, 10 months ago

Can't disagree. There are plenty of honest and intelligent Bahamians who don't put themselves forward for public office for fear of being tainted by the corrupt political system in The Bahamas. If any of these talented individuals is brave enough to put their name forward as an "independent" then constituents should give them every support. The current political elite is a cancer draining the lifeblood from this country.

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Well_mudda_take_sic 3 years, 10 months ago

All of those who pushed for rather than against government's introduction of VAT should hang their heads in shame when reading this one paragraph in a recent article written by Richard Coulson and published in The Tribune:

"The rating agencies will not be blind that VAT was originally sold to the Bahamian public as a direct application against debt increase, only to learn that that the proceeds are swallowed into the Consolidated Fund, where, since dollars are fungible, they simply pay for whatever increased expenses the politicians approve. In their talks with the private sector, the analysts will not find many citizens claiming VAT has improved public services, reduced public inefficiencies or lowered import duties to reduce his food bill - quite the contrary, as every lower-income shopper finds the necessities of life have become a struggle to economise, or do without."

The idiots like John Rolle, Gowan Bowe and others who made the government's case for introducing VAT turned a blind eye to the simple fact that giving a spendthrift corrupt incompetent government more money to spend would naturally induce more government spending and enable more government borrowing. It's common sense that just like you don't give an alcoholic more alcohol to drink, you don't give a corrupt irresponsible government that can't control spending more money to spend. Rolle, Bowe and others like them should have been insisting on tangible evidence of reform in the government's wasteful spending habits for at least a year or two before even considering throwing their support behind any system of new taxation. By not insisting on the VAT revenue being appropriately ring-fenced or earmarked only for paying down the level of our national debt, our country's finances are now in an even worse position than they were before the introduction of VAT. Thank you John Rolle, Gowan Bowe and others like you for helping our government royally shaft all honest hardworking Bahamian taxpayers!! And to think John Rolle went on to become Governor of The Central Bank; a definite quid pro quo from a corrupt government for his efforts in securing more tax dollars for our government to wastefully spend or allow to be squandered by egregious instances of outright fraud!!!

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Well_mudda_take_sic 3 years, 10 months ago

We can't borrow ourselves out of junk bond status as our dumb corrupt government would like to think can be done. By introducing VAT, all our government has done is dig a much deeper hole in which the international lending and rating agencies will bury our country. Just look at what happened to Venezuela after successive corrupt governments (the most corrupt one having been led by Chavez, now deceased) decided to borrow willy-nilly against proven oil reserves and then nationalize the assets of the major U.S. oil companies located in Venezuela. The U.S. government and the international lending and rating agencies controlled by the U.S. government eventually came down on the people of Venezuela like a ton of bricks to make them pay dearly for foolishly electing and supporting tyrannical dictators who borrowed like crazy from the rich developed nations to give to the down trodden non-productive poor Venezuelan people (alla Robin Hood) until the U.S. government decided the hole the Venezuelan government had dug for Venezuelans was deep enough to bury Venezuela and teach Venezuelans an important lesson. Most Venezuelans today are without food, potable water, soap, tooth-paste and, yes, toilette paper. The few Bahamians who support Fweddy Boy Mitchell poking Uncle Sam in the eye (and Perry "Vomit" Christie's cozy relationship with the corrupt mainland Chinese elements he has foolishly allowed into our country) had better wake up to the harsh reality that lies ahead for us when the sleeping giant dragon to the north of us has had enough and decides to breath fire on us like it has done on the disrespectful and ungrateful Venezuelans.

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John 3 years, 10 months ago

VAT was suppose to be a tax that replaced customs duties, stamp tax etc. In its true form vat would not have had the stagnating impact it is having now. But your greedy government, after seeing the potential of VAT, decided to keep the customs duties and stamp tax in addition to VAt. Pure double taxation. To them they say it as more quick, easy money and they bragged on how much they were collecting. But because there was no real growth in the economy, it started to feed on itself. So now you have a shrinking or declining economy and government, in their ignorance or greed, or both, continue to double tax. money is being yanked out of the economy before it can exchange hands, before there is any chance for growth. Almost 20% unemployment and 30,000 persons on welfare, no potential for growth unless the leakages are slowed down and new money is injected into the lame economy.

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truetruebahamian 3 years, 10 months ago

Force out the PLP (Plunder Loot and Pillage) party by any and all means and make them pay it ALL back.

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Well_mudda_take_sic 3 years, 10 months ago

We can't borrow ourselves out of junk bond status as our dumb corrupt government would like to think can be done. By introducing VAT, all our government has done is dig a much deeper hole in which the international lending and rating agencies will bury our country. Just look at what happened to Venezuela after successive corrupt governments (the most corrupt one having been led by Chavez, now deceased) decided to borrow willy-nilly against proven oil reserves and then nationalize the assets of the major U.S. oil companies located in Venezuela. The U.S. government and the international lending and rating agencies controlled by the U.S. government eventually came down on the people of Venezuela like a ton of bricks to make them pay dearly for foolishly electing and supporting tyrannical dictators who borrowed like crazy from the rich developed nations to give to the down trodden non-productive poor Venezuelan people (alla Robin Hood) until the U.S. government decided the hole the Venezuelan government had dug for Venezuelans was deep enough to bury Venezuela and teach Venezuelans an important lesson. Most Venezuelans today are without food, potable water, soap, tooth-paste and, yes, toilette paper. The few Bahamians who support Fweddy Boy Mitchell poking Uncle Sam in the eye (and Perry "Vomit" Christie's cozy relationship with the corrupt mainland Chinese elements he has foolishly allowed into our country) had better wake up to the harsh reality that lies ahead for us when the sleeping giant dragon to the north of us has had enough and decides to breath fire on us like it has done on the disrespectful and ungrateful Venezuelans.

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