‘No cause for celebration’ over S&P breathing room

* Bahamas ‘still has to climb out of hole’ * But Chamber chief ‘fully expects’ 2018 upgrade * Many Bahamians don’t realise reform ‘gravity’

PRIVATE sector executives yesterday said the Bahamas has “no cause for celebration yet” after Standard & Poor’s (S&P) elected not to further downgrade its sovereign creditworthiness.

Edison Sumner, the Bahamas Chamber of Commerce’s (BCCEC) chief executive, told Tribune Business that the Bahamas still had to “climb out of this hole” that last Christmas prompted S&P to slash its credit rating to ‘junk’ status (see other article on Page 1B).

But, speaking after the global rating agency maintained the Bahamas at ‘BB+/B’ with a ‘stable’ outlook, Mr Sumner said he “fully expected” this nation to be upgraded in 2018 given the number of government and private sector initiatives “in the pipeline”.

“The fact we’ve got no further downgrade is a good thing,” the Chamber chief said, “but it’s still no cause for celebration yet until we climb out of this hole and get back to the ratings we’re accustomed to.

“Our anticipation and hopes are, based on the things going on in the country; projects in the pipeline; and initiatives taken by the Government, we fully expect in the next review to see a much more positive report from S&P and other rating agencies.”

The Bahamas lost its ‘investment grade’ creditworthiness with S&P last Christmas after the rating agency downgraded it to ‘junk’ status due to weaker-than-expected economic growth and a slower pace of fiscal consolidation, coupled with the $4.2 billion Baha Mar project’s delayed opening.

Mr Sumner, though, cited the numerous fiscal and GDP growth-enhancing reforms being under taken by the Government and wider economy as the rationale for why he “fully expects” the Bahamas’ sovereign credit rating to be upgraded in 2018.

The Minnis administration is targeting a 10 per cent cut “across the board” in the Government’s spending beyond the approved 2017-2018 Budget limits, having implemented a public sector hiring freeze while not renewing employment for temporary workers whose contracts have expired.

Mr Sumner pointed to the Government’s Public Financial Management initiative and public procurement reforms as a further sign of its determination to rein-in public spending, and slash the fiscal deficit and national debt.

Noting its efforts to also improve data collection and national economic statistics, he said: “The way the Government is going about dealing with legacy debt issues, improving on revenue collection methods, are all things that need to be commended.

“We expect things to happen, and know there are some things in the pipeline. I fully expect to see, when these rating agencies present their first reports for 2018, much better results than for the last three years.” Asked by Tribune Business whether he expected the Bahamas’ sovereign rating to be upgraded next year, Mr Sumner replied: “I absolutely hope so.

“Unless and barring any major catastrophe that comes about unexpectedly, I fully expect that when we see these country reports again there will be an improvement in our competitiveness, an improvement in our sovereign rating, and an improvement in our ease of doing business.”

Robert Myers, a principal with the Organisation for Responsible Governance (ORG), told Tribune Business that S&P’s report and rating action had effectively given the Bahamas “breathing room” to deliver on its economic growth and fiscal consolidation plans.

Describing its decision not to further downgrade the Bahamas as “awesome” and “great news”, he argued that S&P could easily have taken a much harder line last Christmas and cut this nation’s rating by more than one notch.

“I think they’re giving us breathing room, reading between the lines,” Mr Myers said. “They’re [S&P] encouraged by what they see and hear, and are giving us some breathing room.

“I think they gave us a pass last time; they could have been harsher. They recognise everybody’s working on righting the ship, and it’s going to take time to do that. There’s a long way to go, but a lot of people have got their sleeves rolled up.”

Mr Myers added that the Government had shown, through its actions and public statements, that most Cabinet ministers “understand the dire circumstances we’re in”.

S&P and its fellow rating agency, Moody’s, measure the creditworthiness of the Bahamas and other countries based on their ability to repay and service debt. This nation’s downgrade to ‘junk’ status last December indicated that the Bahamas’ ‘risk profile’ had increased when it came to repaying its creditors.

The loss of ‘investment grade’ was damaging for this nation and its economy, as it sent negative signals to foreign investors and the international capital markets about the credibility of the Government’s economic management and the Bahamas’ security as a place to invest.

The ‘junk’ downgrade has also meant the Government had to pay more for its debt, including the recent $750 million bond issue, which was priced at a 6 per cent interest coupon - a rate some 2.5 percentage points higher than the last time it borrowed on the global markets.

This, in turn, raises the Government’s already-high debt servicing (interest) costs, sucking money away from essential public and security services.

S&P’s decision to maintain the Bahamas’ current rating indicates this nation may have ‘bottomed out’ when it comes to downgrades, but also that the rating agency wants to see it deliver and execute on its economic growth and fiscal consolidation plans.

Mr Sumner yesterday said that many Bahamians “don’t appreciate the gravity of what’s going on” in terms of the wide-ranging reforms the Government is making, or exploring, to the country’s taxation structure and the whole way it conducts business.

“The Government has a lot of work to do in cleaning up its own house,” he told Tribune Business, explaining that it needed to eliminate bureaucracy, improve the processing of business-related approvals and focusing on enhancing workforce skills and productivity.

Emphasising that the private sector wanted to work with the Government in building up the Bahamian economy, Mr Sumner said: “Don’t expect the private sector to bear the brunt of improving the economy. Government has to realise, and fully understand, the challenges of the private sector.”

The Chamber chief said he was “anxious” to see both the Government’s mid-year and 2018-2019 Budgets, and especially the latter, since it was the first that the Minnis administration can claim true ownership of.

“We expect to see the Government fully outline its plans to grow the economy and take the country further,” he added.


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