0

‘Realities So Grim’ If No Action On Moody’S

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is “almost compelled” to improve the Bahamas’ fiscal and economic performance, a top insurer said yesterday, because “the realities are so grim” if it fails.

Patrick Ward, Bahamas First’s president and chief executive, told Tribune Business that the Minnis administration needed to “bring everything to bear” to avoid a further sovereign credit rating downgrade by Moody’s in 12-18 months’ time.

He said the insurer, and all other ‘rated’ companies in the Bahamas, had “breathed a sigh of relief” when Moody’s last month elected to give the Government ‘breathing space’ and time to execute on its fiscal consolidation and GDP growth plans.

With the Bahamas’ sovereign rating a factor that can influence individual companies’ ratings, Mr Ward said he was “hopeful” the Government could maintain its ‘investment grade’ rating with Moody’s simply because the alternative was too awful to contemplate.

“All the rated companies did breath a sigh of relief in relation to that,” he said of Moody’s not downgrading the Bahamas to ‘junk’, “and we’d encourage the Government to bring everything to bear to ensure we avoid any downgrade in the future and, at some point, get the ‘negative’ outlook changed to a ‘positive’ outlook.”

Mr Ward’s comments serve as a reminder that, as the Bahamas begins post-Irma reconstruction and gives thanks that the main islands were largely spared, it must also get back to the business of implementing serious and urgent economic reforms.

Despite maintaining the Bahamas’ ‘Baa3’ rating, Moody’s placed a ‘negative’ outlook on the Bahamas due to doubts about the Government’s ability to deliver on its fiscal consolidation and economic growth plans.

The Bahamas’ “exposure to climate-related shocks in the form of hurricanes” was cited as another factor behind Moody’s ‘negative’ outlook, although Hurricane Irma largely spared this nation’s major islands and economic activity centres.

Mr Ward said Moody’s ‘negative’ outlook “speaks for itself”, although he and Bahamas First were “more concerned” about the actual rating.

“At best it gives you an opportunity to take corrective action,” he added of the outlook. “It’s also a warning indicator that says if you do ‘x’, ‘y’ and ‘z’, you have an opportunity to make things better and improve.”

The Bahamas First chief agreed that Moody’s had given the Government ‘breathing space’ to see if it can deliver on its promises, and added: “The execution is something we have to give the new administration time to prove itself on.

“I’m hopeful because the stark realities are so grim in terms of not fulfilling their obligations. It almost compels them to do the right thing and get us back on track, going in a positive direction.”

Mr Ward had previously warned that sovereign downgrades threatened to have a negative impact on private sector credit ratings, as the agencies assessing Bahamas-based companies would have to account for increased ‘country risk’ stemming from this nation’s reduced creditworthiness.

Reiterating that Moody’s move to defer a downgrade was “extremely important”, the Bahamas First chief said yesterday: “It definitely has an impact in terms of the perception of the country, and the risk associated with doing business in the country from A. M. Best’s perspective.

“Avoiding a downgrade gives us an opportunity to have one less issue to worry about when we think about the business environment.”

Bahamas First and several competitors, including RoyalStar Assurance, Summit Insurance Company and Security & General, are also all rated annually by A. M. Best, the insurance industry rating agency, for their financial strength and creditworthiness.

Apart from focusing on each company, A. M. Best’s analyses also factors in country risks such as the Government’s fiscal position, state of the economy and condition of the insurance market.

Thus another Moody’s downgrade, which would match Standard & Poor’s (S&P) in taking the Bahamas to ‘junk’ status, could impact the cost of capital for these insurers and their ability to raise it in the debt/equity markets.

The negative consequences for Bahamas-based companies as a result of this nation’s eight-year sovereign downgrade trend were also highlighted by the Nassau Airport Development Company’s (NAD) downgrade.

The move by the Fitch rating agency was directly linked to the Government’s deteriorating creditworthiness, with Dionisio D’Aguilar, minister of tourism, saying it had a direct impact on NAD’s debt servicing costs.

“Their [NAD’s] debt got downgraded because Fitch said there’s additional sovereign risk,” the Minister previously confirmed to Tribune Business. “They went to downgrade NAD one rating below investment grade, and one effect of that was they needed to increase the bond reserve fund from $19 million to $38 million.”

This, Mr D’Aguilar added, had forced NAD to increase passenger and other user fees at Lynden Pindling International Airport (LPIA) in a bid to meet the increased debt costs.

Comments

Well_mudda_take_sic 1 week, 5 days ago

The rating agencies (Moody's and S&P) exist to ensure interest rates get jacked up on the debt of nations foolish enough to borrow more than they can repay to greedy foreign creditors who provide the rating agencies with most of their income. You only have to know the role these corrupt agencies played in the last 'great recession' back in 2008/9.

0

Baha10 1 week, 5 days ago

However the Rating Agencies operate is irrelevant, as put simply, this is the way the World works today, which means the most basic advise is more apt than ever:

Do not spend more than you make and if you are still in the Red, cut back until you at least break even, and then apply any excess to paying off debt as quickly as possible. Borrowing is a vicious cycle, particularly if one ends up having to borrow more and more simply to pay interest on existing debt without reducing principal.

Not much more to it really!

Of course, to implement, one requires a dedicated, intelligent, hard working and honest populous, which begs the most obvious Question: Do such attributes still exist 44 years post Independence?!?

2

Gotoutintime 1 week, 5 days ago

Such attributes have not existed since 1967!!

2

OMG 1 week, 5 days ago

Just waiting to see the "blame the FNM" followers rubbing their hand in glee. The reality is that this dire financial situation is due in large part to the criminal spending of OUR money, by the incompetent and corrupt PLP. The average diehard PLP supporter still believes there is a money tree to provide countless government jobs and replace aging infrastructure. Sorry if we get downgraded everybody suffers with the exception of the ex ministers who have foreign bank accounts and property.

2

TheMadHatter 1 week, 4 days ago

The invisible elephant in the room is teenage pregnancy; something the church will not allow anyone to talk about. It will eventually destroy us.

The second most important issue is the cost of electricity. THOSE guys are still walking free without even any threat of jail and, last I heard, talking about some new big-time investment.

I don't know how much Bahamians spend every year on Vaseline - but it must be a tremendous amount. Maybe that spending alone is the greatest fraction of our deficit? Just wondering.

1

John 1 week, 4 days ago

TARGET is hiring 100,000 new employees for the holidays. This figure is up 40% over last year. When other retailers and companies like Federal Express, UPS and Armazon complete their holiday hiring a, the US unemployment rate will be at its lowest level in 20 years. Why can't the Bahamas get their unemployment figures moving down.

0

observer2 1 week, 4 days ago

because due to anti competitive policies Target, Walmart, Home Depot or any other massive retail chain that can massively reduce prices in the Bahamas, can't come to the Bahamas.

0

banker 1 week, 4 days ago

It's called Bahamianisation. When you want to keep the Negro down, first you gatta impoverish him and make him dependent on you. It's the PLP way. If we had Hubigetty or even better Minnis as Prime Minister at independence, instead of that subhuman slimey criminal Pindling, we wouldn't be in the trouble that we are in as a nation. Jesus een help either.

0

Well_mudda_take_sic 1 week, 4 days ago

I have said time and time again that the IMF, OECD, IDB, World Bank, Moody's, S&P, etc. etc. all have a connected common agenda to destabilize and bankrupt the Bahamas so that the foreign corporate interests behind these so called international lending, regulatory and rating agencies can feast like vultures on our natural resources at bargain basement prices. The main hideous instrument of their destabilization efforts is the lending teat ("tit) put to the mouths of our incompetent, dumb and corrupt politicians who will suck on it like drunken sailors. This is the tried and time tested successful modus operandi of the developed countries when it comes to the global establishment devouring the resources of lesser developed countries on the cheap! Our new Minnis-led FNM government must avoid sucking on the debt tit as much as possible, notwithstanding being encouraged to do so by these very same international agencies whose advice is aimed at destroying our control of our own economy and destiny.

0

Sign in to comment