The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas needs “comprehensive financial sector reforms” if its economy is to grow, with a leading investment analyst arguing: “For too long we’ve been accepting mediocrity.”

Larry Gibson, vice-president of Colonial Pension Services (Bahamas), told Tribune Business this nation needed to go much further than the government listing its debt on the Bahamas International Securities Exchange (BISX) and “put in place those fundamental things modern financial systems have”.

While hailing the $3bn move as “a step in the right direction”, he argued that Bahamians needed to “stop fooling ourselves” that this country has a “first world economy” when it was lagging so far behind Caribbean and international rivals in modernising its financial services infrastructure.

Mr Gibson said this was a prime reason why the Bahamian economy is “moribund” and failing to grow more rapidly, and he warned that it would continue to “meander along” without deep-seated reforms that improved the ease of doing business together with transparency and accountability.

Urging The Bahamas to “wake up” and realise just how far it was lagging behind, he identified a credit rating agency to assess the creditworthiness of Bahamian companies as one of the missing “pieces of the puzzle”.

Mr Gibson said such an agency, which is the corporate world’s equivalent of the imminent Credit Bureau for individual borrowers, was becoming increasingly important given the growing trend of private companies seeking to raise debt financing from private investors.

Without an independent analysis of these companies’ prospects and ability to repay the debt, the Colonial Pension Services chief warned that it would be difficult to build capital markets confidence in such offerings.

“It’s not until we have all the pieces in place; a credit rating agency for individuals and companies, and an improved settlement process, that our financial sector and economy will be in a position to grow,” Mr Gibson warned.

“If you look at our economy right now it’s just so slow and moribund. The reason for that is we’re so far behind the times and need to put in place those fundamental things modern systems have.”

The Government and BISX last week confirmed that a 20-year journey is nearing completion with the listing of the former’s medium and long-term Bahamian dollar debt, divided into more than 200 issues and worth collectively over $3bn, on the exchange.

The move, first mulled when BISX was launched in 1999, is another example of how difficult it can be to introduce change in The Bahamas and move this nation into line with long established practices in other nations.

While “applauding” a development that took almost two decades to come to fruition, Mr Gibson told Tribune Business: “The unfortunate thing is we tell ourselves we’re in a first world economy but we’re not.

“This is a step in the right direction to get us closer, but let us not fool ourselves any. We’re so far behind in modernising our financial sector. We need comprehensive financial reform in this country if we’re going to get any better. For too long we’ve been accepting mediocrity.”

Mr Gibson said The Bahamas needed to “take a hard look at the Government”, describing “every single touch point” where the Government interacts with businesses and individuals as “antiquated”.

“Until we improve this we will not see any meaningful improvement in the ease of business,” he added. “Until we kick on this path and really improve transparency and accountability, our economy is going to be slow and meander along.”

Turning to the Government’s BISX debt listing, Mr Gibson said: “This is only the beginning. This is something that should have happened 20 years ago, but I guess we do everything incrementally, one step at a time.

“We need to wake up and realise we’re so far behind, lagging in many respects, and this is why so many regional economies have overtaken us and we’re going nowhere fast.”

While the secondary market trading of government debt via BISX is not scheduled to begin until November 2019 at earliest, Mr Gibson said securing this – as well as its listing – had been one of the “key objectives” when the stock exchange was first conceived.

Suggesting that the move will “open up” the government debt market to more institutional and retail investors, he added: “It brings greater transparency to the whole process and improves the system of settlement in The Bahamas.

“It makes capital raising far more efficient. The most important driver is the whole issue of establishing an effective yield curve, and it goes hand-in-hand with efforts to establish a credit bureau. It should give transparent, fair and equitable insight into risk across the whole spectrum.”

With the pricing of government bonds known and available to the whole market, Mr Gibson said this could be used as a benchmark to price corporate debt offerings – bonds and preference shares. Ultimately, he suggested it could even be a mechanism to assess individuals’ credit risks.

“A great problem in this country is you’re seeing a lot of private companies issuing debt, whether preference shares or bonds,” he added. “The next part of the puzzle is a credit rating agency.”