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Bahamas downgraded by Standard & Poor's

By NEIL HARTNELL

Tribune Business Editor

nhartnelll@tribunemedia.net

Standard & Poor’s (S&P) today downgraded The Bahamas’ sovereign creditworthiness citing “the failure of successive governments to implement timely and effective” fiscal reforms even prior to COVID-19.

The credit rating agency joined its rival, Moody’s, in plunging this nation further into so-called ‘junk’ status by slashing its long-term and local currency rating to ‘B+’ from ‘BB-‘ after the national debt increased by $2.4bn in just two years.

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However, S&P broke with Moody’s in simultaneously providing The Bahamas with a glimmer of hope by upgrading its “outlook” for this nation’s public finances from ‘negative’ to ‘stable’.

It based this upgrade, which signals no further downgrade of The Bahamas is expected within the next 12 months, on its expectation that the economy’s post-COVID recovery will drive increased revenues and narrow the Government’s annual fiscal deficit despite the absence of major reforms.

“The stable outlook reflects our view that the economic recovery presently underway will support government revenues and reduce pressure on government expenditures, supporting a gradual decline in fiscal deficits over the next 12 months,” S&P said in its Bahamas country analysis. “We expect continued, but decelerating, growth in the national debt.”

S&P also predicted that the Bahamian economy will expand by the equivalent of 3.7 percent of gross domestic product (GDP) in 2021, a rate that is higher than projections by both the International Monetary Fund (IMF) and the Central Bank of The Bahamas.

But, while its 8.6 percent GDP growth projection for 2022 is also higher than others’ estimates, S&P voiced concern that “slow progress” in enacting fiscal reforms had undermined the Government’s finances even before the double blow inflicted by COVID and Dorian.

“Although successive governments have continued to work on policies and legislation to support their fiscal responsibility mandate, they have not enacted material revenue measures or sustained expenditure cuts,” S&P said, adding that it anticipated the 10 percent VAT rate cut will be “revenue neutral”.

“We believe the new administration will take time to assess the country's fiscal and debt situation, which may further delay the implementation of new fiscal measures,” the rating agency added.

“We believe the country's track record of slow progress in reforming public finances and key sectors of the economy has contributed to the weakening of its financial profile over many years, and hurt its economic performance.

“Most notably, failure to advance public financial reform has led to a marked increase in the sovereign's debt burden.”

For the Bahamian public, the significance of S&P’s action is a further potential increase in the Government’s borrowing costs and associated debt service payments, which will threaten to suck resources away from public services such as health, education, social services and the security forces.

Investors will likely seek higher interest rates on Bahamian sovereign debt to compensate for the extra risk due to the Government’s loss of creditworthiness. This, in turn, will lead to the higher debt servicing costs that will ultimately have to be paid by the Bahamian taxpayer.

The timing of S&P’s action could impact both the Government’s planned $700m foreign currency bond, and Bahamas Power & Light’s $535m rate reduction bond, by imposing higher interest rates if both go to market in 2022.

And the downgrade could also hit foreign direct investment (FDI) and associated confidence, as investors will have to factor increased country and fiscal risks into their decisions as to whether to deploy capital on projects in this nation.

• More in Monday’s Tribune

Comments

hrysippus 9 months ago

Wow. the downgrades continue. Junk bond rating and not even Main Section news any longer.

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bahamianson 9 months ago

Exactly, we should not be surprised. We are broke but still find money to hire people and give promotions. I dont get it, what company loses money and hires and promotes at.the same time?

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skeptic 9 months ago

Right. Exactly. That is PRECISELY the problem. We live in a society that spends 18 percent of its GDP, while the rest of the world spends 40 percent of its GDP. So the problem is DEFINITELY that we are spending too much, right?

I mean, by no means could it be that we give rich people a TOTAL break on income taxes, which everyone else does not; or that we (again, unlike the rest of the world) fail to tax corporations on their profits - even those that earn $100 million annually like FOCOL, Colina and others.

What ignorance persists in this land!

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Dawes 9 months ago

We tax business on their revenue, which means even if they make a loss they pay taxes. If we taxed on profit government would get $0 for the last year from most companies. But Corporation tax is much better then business license. On income tax i hope they produce a study first to see what rate would work, as if they go in at 20% over $50,000 then you can say buy to many jobs.

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Emilio26 9 months ago

It seems like the Davis administration doesn't have a legitimate plan to bring our country out of the mess it's been in for so long

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donald 9 months ago

Government needs to downsize, get out of private business i.g. airline, hotels, banks, cable, electric, etc

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bcitizen 9 months ago

I think we need to make more new positions like office of the spouse. Maybe expand it to MP's and Senators.

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ColumbusPillow 9 months ago

Only governments that support developing its country's natural resources can survive. The PM coming home from the COP26 circus demands the end of oil and gas exploration. People in Trinidad, Barbados, Guyana, Surinam, etc , take strong exception with our PM's thoughts..

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Maximilianotto 9 months ago

Time is running. The uphill battle to fix 5 decades of waste of $10 bn. Bloated public sector needs quick painful fix, abolish unnecessary BIA, sell SOEs immediately, sugarcoating over. All hands on deck. Reduce number of ministries , halve ministers salaries until outlook becomes positive. Good luck to the best PM we ever had!

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sheeprunner12 9 months ago

The PLP won't do that ...... They must take care of friends, family and lovers ....... Most of the political elite have already stashed their money in USA, Canada etc ...... It's the poor and indebted that will catch hell and suffer when the crunch really starts.

If the PLP wants to do something of value, then it should tell the Bahamian people that it cannot borrow any more money, it must reduce the recurrent budget and it must cut future spending projections to make the country live within its means. Is that even possible????

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tribanon 9 months ago

Standard & Poor’s (S&P) today downgraded The Bahamas’ sovereign creditworthiness citing “the failure of successive governments to implement timely and effective” fiscal reforms even prior to COVID-19.

Absolutely laughable when you consider the IMF, World Bank, IDB, etc. have all been complicit in the build-up of our unsustainable national debt. These international lending agencies knowingly (and I would submit very wrongfully) facilitated the willy-nilly excessive borrowing by the fiscally irresponsible successive governments they speak of.

For decades many of us have stood by scratching our heads trying figure out why these international lending agencies were so keen to keep the huge lending teats (tits) of the foreign stakeholders they represent pressed hard against the ever sucking lips of our well known corrupt and fiscally irresponsible successive governments. Only in recent years, as the level of our nation's foreign currency denominated borrowings has dramatically increased, have more Bahamians come to realize and understand the exploitative game plan of the developed countries, and their very greedy corporate constituents, that is now entering its final and most destructive phase.

These international organizations and the greedy exploitative foreign corporate interests they represent, including of course the major credit rating agencies, all work hand-in-hand with each other to get vulnerable nations like ours hooked on unsustainable national debt that eventually sucks the entire life blood out of our economy. That life blood is sucked out in the form ever increasing debt service costs, aimed at creating economic destabilization that enables the foreign corporate vultures circling overhead to swoop down and buy-up our nation's most valuable assets at fire sale prices.

The wicked and cruel end game of these international financial agencies effectively results in the 'take-over' of our small vulnerable nation with the vast majority of us Bahamians becoming nothing but a cheap source of labour for the sinister and evil exploitative foreign powers that be.

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tribanon 9 months ago

P.S. The foreign cruise ship enterprises like Royal Caribbean, Carnival and Disney, have been the biggest and most greedy vultures feasting on our increasing economic instability. They offer absolutely nothing of economic benefit to our nation as they go about heavily polluting our environment and frolicking with our all too easily corrupted elected officials and other senior members of government.

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concerned799 9 months ago

Fortunately, this is both a high return and easy problem to solve. Kick them all out of the Bahamas, should have been done years ago.

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ThisIsOurs 9 months ago

The issue I have a problem with are the technilogy loans. They keep coming. and theyre way over priced. multi millions for what could be done with a few hundred thousand. Then they say well you dont know everything we want to do. But noone ever details what "everything" is. And when you see what they deliver thats the real shocker... and getting an award for delivering by the people who lent the money...knowing youll be back for more to fix the shoddy delivery.... its bizarro world

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Emilio26 9 months ago

My question is that if the previous government has collected close to $9 billion in vat taxes over the past 3 years then why wasn't some of that money used to pay off our national debt?

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FrustratedBusinessman 9 months ago

I would really like to see up to date statistics of how much of our workforce is employed in the public sector vs private. Would just confirm a few things about why we are in such a hole today.

The sad part is that we aren't digging ourselves out any time soon. We only seem to be going deeper.

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sheeprunner12 9 months ago

40,000 work for Govt or corporations. Govt pays out $800 million in wages per year PLUS pensions to retirees. Plus Govt is responsible for BTC pension. Bear in mind that the corporations are all in debt and depending on Govt subventions. Plus the Govt is on the hook for $1.5 billion of anticipated pensions for its present workforce. So, we'll see if, how and when all of these bills will be amortized over the short term. The private workforce is more sketchy as many work in the informal sector.

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TalRussell 9 months ago

Someone posted that the government is also responsible for paying the pensions of retired Bahamas Telecommunications Company’s (BTC) pensions but skipped out on mentioning, 'twas is the title since was his Papa Hubert who was the one who saddled the PopoulacesPurse with such a forever carrying-forward financial burden.
Plus the VSEPs still coming-up for Papa made forever entitled 2021 BTC employees and everything else like this and that ― Yes?

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realfreethinker 9 months ago

Every candidate for the plp is now on the government payroll. Every one just got promoted and others getting raises. All the major corporations have executive chairmans.

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Honestman 9 months ago

The IMF will soon be dictating Bahamian economic policy. It is inevitable. The IMF will force government to slash public sector jobs and salary levels.

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TalRussell 9 months ago

Back during the third week of March 2021, wasn't it the FNM's own attorney general Comrade Carl Wilshire Bethel, who sounded a warning about how The Colony's dollar, remaining pegged at par to the USD. would remain under threat, should the Central Bank, not order an alternation, away from a certain USD borrowing habit and everything else like this and that would make light-weight out anything the new security minister has uttered, ― Yes?

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BONEFISH 9 months ago

Moody's also downgraded the Bahamas' debt after the election. This is a reflection of this economy after the twin problems of hurricane Dorian and Cov19. This economy was having problems before those events

Overstaffing the civil service was the PLP's way to deal with the unemployment issues. That may not be feasible in the future. Given the government's financial position and constraints being placed on it by international lenders.

Guardian radio talk show host Dwight Strachan made a suggestion to deal with the employment issues in the Bahamas. A series of bilateral agreements between the Bahamas and other countries, allowing ,bahamians to work in those countries for a period of time. It was done before. Quite a number of bahamians would take advantage of a scheme like that. Increasing amounts of bahamians are living and working aboard. That may be what the future portends for a number of Bahamians.

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Twocent 9 months ago

“…This is a reflection of the economy…” I doubt it. It is more an opinion on a government and particularly its apparently strong-headed people. When big power needs to feel more secure in its power it uses its power. Thomas Friedman's 1996 comment was that “There are two superpowers in the world today in my opinion. There's the United States and there's Moody's Bond Rating Service. The United States can destroy you by dropping bombs, and Moody's can destroy you by downgrading your bonds. And believe me, it's not clear sometimes who's more powerful. (February 13, 1996 interview with Jim Lehrer). Consider where these so-called ratings agencies came from…the rich and powerful railroad magnets and the man who steered investments towards them!

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concerned799 9 months ago

That said, are they wrong? I don't think anyone here seriously thinks they are wrong. Government after government refuses to sell BPL or deal realistically with a payroll budget we can afford.

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tribanon 9 months ago

You're obviously one who would question whether the sinister and evil motives of the Devil himself are wrong. LMAO

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C2B 9 months ago

So the borrower has no responsibility? Just say NO. Don't take the loan.

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concerned799 9 months ago

BPL needs to be sold ASAP so the treasury no longer has to guarantee anymore of its losses.

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sheeprunner12 9 months ago

BPL is debt ridden and inefficient. Who will buy it? BPL is no BaTelCo. We made a big booboo with BTC, but selling BPL will be far more difficult. Easier to sell BOB and Bahamasair rather than BPL. But I doubt if the PLP will sell any of these entities. They opposed the sale of BTC, so why would they double take now???? Only the IMF will force the sale of these Bahamian SOEs.

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tribanon 9 months ago

And you certainly are okay with the IMF leading all vulnerable Bahamian sheep like yourself to slaughter. Better be careful what you pray for. LOL

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concerned799 9 months ago

Value to a buyer is being able to fix it, and the license that comes with BPL. So it can be sold and probably for a couple hundred million. But even if you only got $1 for it better to sell it so we don't have to keep pumping money into it and go on the hook for even more BPL debt.

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C2B 9 months ago

Sell to who? Would you take it for a dollar? Next week you have to pay the losses. A foreign company would only expose itself to internal political issues and Bahamian style, "blame the foreigners for everything". There are easier ways to make money out there.

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jamesg30 9 months ago

By the way. Get vaccinated so we can get our country churning again. For the idiots who think there is a chip in the vaccine, no hope for you. Good luck. By the way, we spent our way into this. Blame anyone and everyone you want. We wrote the checks and did not have the cash to back it up. Blaming IMF and others is such a weak cop out.

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ThisIsOurs 9 months ago

We're still under 20% vaccinated. Someone said 40% but Im not sure if that ratio included partial vaccinations. The cases went to zilch anyway. I do not believe full vaccination was ever necessary and we now have more proof of that.

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John 9 months ago

Racially driven. Amen

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