By NATARIO McKENZIE
Tribune Business Reporter
THE Government must deliver on its commitment to fiscal responsibility the Bahamas Institute of Chartered Accountants (BICA) urged yesterday, describing as a "fortunate result" Moody's decision to maintain this nation's Baa3 rating.
Moody's on Tuesday maintained the country's Baa3 credit rating with a negative outlook, noting: "This outlook, it said, "reflects potential downside risks to the fiscal consolidation process posed by weaker-than-expected growth, exposure to climate-related shocks in the form of hurricanes, and implementation risks associated with measures to rein in expenditure growth and increase revenue intake".
Gowon Bowe, BICA president, told Tribune Business: "It's a fortunate result. I don't think it's widely known but the managing director of Moody's came into town as well because a number of the fundamentals were below what they would consider the median of similarly related countries. There was a great amount of focus by them in terms of being satisfied as to where The Bahamas stacked up against its peers with similar metrics. I don't think the report was too positive or overly negative."
He added: "The harsh reality is nothing much has changed since they revised their rating, meaning there wasn't any deterioration nor any substantial improvement. A negative outlook is something we have to be focused on because it means their leaning, if you will, is on the negative side as opposed to an upgrade."
Moody's has warned it would downgrade the rating if, over the next 12-18 months, it observes that government's fiscal consolidation efforts are "unlikely to reduce deficits to levels that would reverse the trend of rising debt ratios and lead to a stabilisation in government debt metrics".
"They are really talking about execution. They highlighted lethargic growth for an extended period of time and the private sector has repeatedly said to the government that the focus has to be on economic growth and not only revenue enhancement measures," Mr Bowe noted.
"The institutional strength except for Bank of The Bahamas is known. I think it's positive they recognise that. The domestic banking and financial services system is relatively strong and provides a heavy amount of funding and capacity for the government. It's a strength but will not be available forever. We have to look forward to execution of some of the plans we have announced. There is obviously a very close observation to what has been uttered and commitments as it relates to fiscal responsibility."
Commenting on the impending fiscal responsibility legislation and fiscal rules expected to be tabled in the fall, Moody's said government will need to prepare and implement adjustment plans should deviations from the rules happen.
"We consider that establishing these rules in law will be an important step towards strengthening the institutional arrangements that guide fiscal policy in The Bahamas. Moreover, equally important will be the government establishing a track record in terms of the reporting requirements set by the legislation, therefore enhancing transparency, and meeting the targets set in the rule," said Moody's.
"What I think should be highlighted is their comment on the peg stability because there has been a lot of chatter by the public about the Bahamian dollar being overvalued and on the verge of being devalued. That is absolute and utter nonsense and both political parties have done it when in opposition. It is something that has to stop.
"This is one of the first time I have seen Moody's or S&P outright speak to the strength and stability of the peg. They highlight that because of the peg's ability to affect monetary and fiscal policy is constrained and they don't give government credit for some of the positive results on the fiscal and monetary front because they don't have the ability to do otherwise because of peg. That means Central Bank will constrain what they borrow and what they are able to do with foreign currency and that will provide a natural barrier for less than wise decisions."