Two-year risk to nation's credit


Tribune Business Reporter


Downside risk to the country’s credit profile will remain for the next two years, ratings agency Moody’s warns as it keeps the country’s sovereign credit rating to Ba2 with a negative outlook.

The rating agency, in their annual credit analysis of The Bahamas, said that given the severity of the COVID-19 crisis they expect downside risks to the credit profile to remain over the next two years.

Moody’s added: “The Bahamas credit profile incorporates moderate economic strength, reflecting its subdued economic performance, high wealth levels and moderate institutional strength, which underpins confidence in the currency peg and overall macroeconomic stability. Two shocks, Hurricane Dorian in 2019 and the coronavirus outbreak this year, will weigh significantly on economic growth and lead to higher debt and interest burdens. This will test the government's progress in strengthening its fiscal policy framework.

“There is still significant uncertainty about the strength and speed of the global tourism sector's recovery. If the recovery in 2021 ends up weaker than what we currently expect, it would place additional pressure on government revenue and further erode the sovereign's fiscal strength. Prospects for debt stabilization are also highly dependent on economic performance in 2021 and 2022. Moreover, if market sentiment towards The Bahamas does not improve, it could weigh on the government's ability to finance its larger funding needs through 2021/22. While the favorable maturity profile of government debt mitigates some risks related to government liquidity (the next global bond is not due until 2024), limited market access could create external liquidity pressures.”

Moody’s added that given the negative outlook a rating upgrade is “unlikely”. However, the outlook could be changed to stable if “the government successfully finances its larger borrowing requirements for fiscal 2020/21, and if tourism recovers, supporting growth and budgetary revenue. Implementation of fiscal and economic policies that support fiscal consolidation and stabilise the debt burden over the coming years would also be credit positive”.

Further compounding this, Moody’s warned that negative credit pressure could emerge if the government runs into “heightened liquidity pressures”, that would limit its ability to fund larger fiscal deficits over the next two years that would cause more material decline on the foreign reserves.

Moody’s also said: “Near-term economic prospects, already buffeted by the impact of Dorian on Grand Bahama and the Abacos, are further weighed down by the impact of the coronavirus crisis. In addition border closures and quarantine measures imposed to contain the spread of the disease, major hotels, including Atlantis and Baha Mar, closed their doors in March.”

The borders were opened to international travel in July, but were quickly closed again due to the increase in COVID-19 cases Moody’s said, along with the lack of demand the two largest hotels in the country BahaMar and Atlantis, delayed their openings until after October, with Atlantis first having given a date in July for reopening and then changing that to a date to be determined after October. As a result of the full closure of international travel to the country and the closure of major resorts, Moody’s said tourism losses was almost 100 percent in the second quarter and they expect it to remain throughout much of the third quarter.


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