Bahamas Warned On New Downgrade Risk


Robert Myers


Tribune Business Editor


The Bahamas was yesterday warned by Standard & Poor’s (S&P) that it faces “at least a one-in-three chance” of a further downgrade to its sovereign credit rating within the next 12 months.

The credit rating agency, which maintained this nation’s creditworthiness at “BB+/B” despite cutting the outlook to “negative”, appeared to base its actions and analysis almost entirely on the fiscal blow dealt by Hurricane Dorian with the coronavirus pandemic only a secondary factor.

With tourism, The Bahamas’ major job and economic growth driver, now really starting to feel booking cancellations and postponements due to the reluctance to spend and travel amid the COVID-19 fall-out, several observers yesterday suggested a downgrade could arrive even sooner than S&P indicated depending on how widespread the pandemic becomes and how long it lasts.

Robert Myers, the Organisation for Responsible Governance’s (ORG) principal, told Tribune Business in response to S&P’s report: “It’s not like it’s bad enough already.” Arguing that The Bahamas was already “in another crisis”, he added that both the government and ordinary citizens needed to brace “for a storm” created by a combination of category five hurricane and pandemic.

“My only comment would be that I don’t think that data [S&P report] accurately reflects today’s news,” Mr Myers added, referring to the worst daily crash suffered by the London and New York stock markets for 33 years since “Black Monday” in October 1987.

“The Government of The Bahamas and the citizens of The Bahamas should ready themselves, and prepare themselves, for another storm,” he continued. “It just means we are in another crisis. I hate to say it, but we are. There’s going to be some panic.

“If that doesn’t happen we should consider ourselves lucky. It’s hard to try and get your head around. You’ve got to try and stay optimistic, but my God it’s getting tougher.” Mr Myers said S&P’s latest Bahamas report could be subject to reappraisal very quickly, even “in the next month or two”, and added: “It could be wildly different depending on what happens with the coronavirus.”

He spoke out after S&P, whose analysis appears to have been written prior to Covid-19’s declaration as a pandemic and the implementation of various shutdowns and travel bans, warned that The Bahamas was in danger of being sandwiched by its spread and Hurricane Dorian.

Explaining why it dropped The Bahamas’ outlook from “stable” to “negative”, the rating agency said: “The negative outlook reflects the increasing risk of weaker revenues or higher borrowing costs, resulting in a sustained interest burden in excess of 15 percent of revenues.

“The Bahamas substantial deficits, including hurricane-related spending, are leading to a notable increase in the country’s debt burden in our view. At the same time external risks to the country’s economic growth are rising due to, for instance, the global spread of Covid-19, which could weigh on The Bahamas’ revenues.”

S&P then followed this up by warning bluntly: “The negative outlook reflects that there is at least a one-in-three chance that we could lower the ratings on the country to ‘BB’ from ‘BB+’ over the next 12 months. We believe that slower-than-expected revenue collections and higher spending could cause The Bahamas’ fiscal results to deviate from our base-case expectations.

“We could lower the ratings in the next 12 months if the country’s finances deteriorate from our expectations, leading to interest costs exceeding 15 percent of revenues on a sustained basis. This could result from lower-than-expected revenues, higher borrowing costs or additional debt.

“We could also lower the ratings if continued erosion in fiscal results suggests a deterioration in The Bahamas’ institutional effectiveness in supporting sustainable public finances and economic growth.”

To ward off a downgrade, and ensure a “stable” outlook is returned over the next year, S&P said The Bahamas needed to stabilise the Government’s finances, hit revenue targets and keep the state’s debt burden below 15 percent of its income.

The Government yesterday sought to highlight the positives from S&P’s analysis, completely ignoring the prospect of a further downgrade to its creditworthiness, and instead focusing on the fact that one had been avoided this time together with the credit rating agency’s praise for its institutional reforms.

“The assessment by S&P is not surprising given the conscientious adjustments we made to our original spending and borrowing plans so as to recover from the catastrophic impact of Hurricane Dorian,” K Peter Turnquest, deputy prime minister, said in a statement. “Although these deviations from our fiscal plan will not be permanent, we anticipated they would affect our outlook.

“We are pleased to see that the Government’s various fiscal reform efforts were acknowledged and commended in the report, as they have contributed to the country’s strengthening fiscal institutions and our capacity to deal with substantial external shocks. It is no small accomplishment to weather damages equivalent to one quarter of your annual economic output and still maintain your credit rating.”

“Notably, even though the report foreshadows potential economic fall-out from the coronavirus pandemic, S&P still expressed confidence in the checks and balances put in place to prevent further erosion of our creditworthiness. These included the Government’s demonstrable increase in fiscal transparency and reporting and the focus and progress on institutional reform.”

S&P, noting that the Government’s fiscal ratios have continued to weaken due to persistent annual deficits, said: “The Government’s revised borrowing plans following Hurricane Dorian include almost $1.5bn in additional debt over six years.

“Hurricane-related spending is the largest contributor to the additional debt. However, a portion is also related to ongoing operating and capital needs, highlighting the challenges facing the Government on its path to fiscal sustainability.

“At the same time, economic headwinds have strengthened recently, including increased risks of a US slowdown and the Covid-19 outbreak, which could have negative implications for government revenues given the importance of tourism to the local economy,” S&P added.

“Since our last review, the country’s debt burden has risen above 50 percent of GDP, and will rise above 60 percent when the guaranteed debt of state-owned enterprises (SOEs) is included, putting pressure on our debt assessment.”

S&P estimated that the Government’s and financial sector’s external debt will hit 40.1 percent of current account receipts this year, with The Bahamas’ low per person GDP growth over the past decade “reflecting structural challenges that will be difficult to overcome”.

And, while The Bahamas had attracted a record 7.2m visitors in 2019 despite Dorian devastating Abaco, the credit rating agency said dependency on the US for 80-85 percent of all arrivals remains a vulnerability.

“A US slowdown remains a risk to The Bahamas. An emerging risk to tourism is the coronavirus, which could affect the high-value stayover segment as well as cruise ship arrivals. The country’s economy remains concentrated in tourism and, consequently, is vulnerable to external risks affecting this sector,” S&P said.

That risk is now increasingly emerging. Carnival yesterday said it was halting all voyages by its Princess Cruise line until May 12, a move that will directly impact the Bahamian vendors and staff that work in its Princess Cay destination off Eleuthera.

Hotels, tour operators and excursion providers are also experiencing an ever-growing rate of cancellations as travellers opt to stay at home to avoid the risk of Covid-19 infection and conserve funds amid the rising economic uncertainty.

S&P predicted that the Bahamian economy will shrink in 2020 due to Hurricane Dorian, but the coronavirus’s effects on major tourism source markets and international trade mean that contraction is likely to be deeper than the rating agency thought.


Well_mudda_take_sic 10 months, 1 week ago

We haven't had a competent and non-corrupt government since Independence Day on July 10, 1973 when the British Government left us with no (zero) national debt. Since then we have had one incompetent and corrupt government after another with the toll being unsustainable national debt. We all know what's coming from the rating agencies and we all know the incompetent and corrupt Minnis-led FNM government will blame the next downgrade on Dorian and Covid-19 as opposed to its own reckless 'borrow, borrow, borrow and spend, spend, spend' governing aimed at masking its failed and/or non-existent social and economic policies.


longgone 10 months ago

I don't always agree with Mudda but when he's right I do!


abahamianson 10 months, 1 week ago

Regardless of our opinion on what or who may be the problem, let us try to find the solutions. We are way past the pointing of the finger, and the blame game. Our nation is in peril!!! All her citizens must now RISE!. Ideas and imagination is the order of the day. Brainstorming, deductive reasoning, information sharing and gathering should be our tasks. THERE IS A WAY OUT! And, since we are an educated and competent people. It's not a matter of skill, but, are we willing to make this change?? Does it sound utopic, I hope not. But it is meant to be both real and surreal. My Bahamas, we have the resources, we have the people to begin this change, NOW!


Well_mudda_take_sic 10 months, 1 week ago

The successive corrupt governments we've had since 1967 have left our society bereft of the brain power attributes you speak of. Instead we have an abundance of unsustainable national debt and a society of many "have nots" and few "haves" with little brain power in either of these two economic groups. For decades now our best and brightest Bahamians haven't been returning to the Bahamas after receiving a first class education abroad. They rightfully saw little hope for themselves in a country where who you know rather than what you know is all that matters.

But you're nevertheless doing an excellent job at articulating Minnis's position that "We are all God's Children" and therefore need only sing the famous song lyric: "Don't worry, be happy".


Socrates 10 months, 1 week ago

Unfortunately this is just the beginning. More catastrophes to come. However as a christian nation we should take comfort that we are witnessing the fulfilment of prophecy and getter nearer to the 2nd coming.


ThisIsOurs 10 months, 1 week ago

Well I don't know if I prepared for the part where it get so bad people running through the streets screaming for rocks and mountains to fall on them :-|


Well_mudda_take_sic 10 months ago

With jinxed Minnis at the helm, I'm worried dead frogs infected with bubonic plaque may soon start raining down on us. Our creator certainly seems to be sending us a very ominous message. And our next hurricane season is rapidly approaching!


bcitizen 10 months, 1 week ago

If we can't get a government to get our civil service under control, stop its geowrh, make it actually function, reduce red tape we cannot correct our downfall. The civil service is choking the life out of the private sector. Stiffiling growth, increasing costs, and making regulation after regulation that only the legitimate business have to follow.


ted4bz 10 months, 1 week ago

No one is qualified to fix this problem, sorry. The real problem is the leadership is CROWDED (plagued) by fancy talkers and phonies. That does not make them technocrats, technical, action nor practical people. From one admin to the next admin there is no shortage in entertainers, distractors and flimflamers, they are good at getting that right. Except, duty is not all about that. In the main time the problem persist, gradually and consistently worsening.


Well_mudda_take_sic 10 months, 1 week ago

The very incompetent and corrupt Minnis-led FNM government will only ever be good at "breaking" things because it has demonstrated time and time again having no ability whatsoever to "fix" anything.

But please don't ask how much worse can things get because I'm personally convinced Minnis is so evil and jinxed that we may yet see dead frogs infected with the bubonic plaque raining down on our nation.


ThisIsOurs 10 months, 1 week ago

"No one is qualified to fix this problem"

I don't believe that. But I understand the point.

We have the people. The real question is, is this crisis dire enough for Minnis and Peter Turnquest to remove themselves and allow competent people to lead? And I don't mean resign. I mean just hand the planning and the decisions to competent people. no more PR games

Unfortunately I already see Dr Minnis trying to insert himself into the narrative for political mileage by flinging his Dr title around. Case in point taking over a press conference with Dr Sands sitting by silently and not even able to pronounce "respiratory" properly. He did the same thing with Dorian.

None of us know the constraints Dr Sands is working under. (yes I like Dr Sands I just think he needs a very good political strategist advising him)


birdiestrachan 10 months, 1 week ago

The FNM Government chief Among them Peter Turnquest believes they can Lie and Spin themselves out of this situation.

They will not be able to do so. Because this situation is a wide world reality.an economic disaster,


Well_mudda_take_sic 10 months ago

And you seem so gleeful !!

You and the PLP leadership apparatus don't have a care in the world about the vast majority of Bahamians and are only relevant today because Minnis has turned out to be as bad for our country as Christie ever was.... sadly, maybe even worse.


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