Bank chief pushes back on imminent debt default


Gowon Bowe


Marla Dukharan


Tribune Business Editor


A prominent banker yesterday said there are no signs the international capital markets agree with a Caribbean economist that a Bahamian sovereign debt default is imminent.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that The Bahamas’ ‘Ba3’ credit rating was still above the ‘C’ territory where most defaults occur while the country’s bondholders were giving “no immediate sense of panic” or sign a sell-off is close.

He pushed back after Marla Dukharan, the former Royal Bank of Canada (RBC) chief economist for the Caribbean, doubled down on her earlier prediction by restating in her monthly newsletter that a Bahamian sovereign debt restructuring and International Monetary Fund (IMF) adjustment programme will occur within the next two years.

“We expect a debt restructure and an IMF programme in the next year or two,” she said. “In June-July 2021, stay-overs (stopover visitors) reached 72 percent of corresponding 2019 levels. Government debt reached $10.356bn at end-June 2021, up 16 percent year-over-year.

“External debt rose 44 percent year-over-year in July 2021 to $4.36bn, providing a boost to international reserves. An [IMF] special drawing rights (SDR) allocation of $174.8m added approximately $247.5m to international reserves in August 2021. International reserves stood at $2.61bn in July 2021, up 32 year-over-year, with usable reserves at $1.31bn.”

While The Bahamas is certainly headed for an IMF adjustment programme and debt default if it fails to rapidly alter course and lower government borrowing, it has not occurred yet. And Mr Bowe argued that Ms Dukharan’s assessment was based on a static, theoretical model that did not allow for government policy changes which could head-off such a catastrophic outcome.

“I’m not being dismissive,” the Fidelity chief told this newspaper of Ms Dukharan’s assertions, “but it’s often overly theoretical and does not have consideration of policy actions that, if not taken, could lead to those outcomes. There are a couple of aspects the Government and knowledgeable persons have to rebut.”

Mr Bowe said a debt default occurred when the Government was unable to either service its debt or repay an issue due to mature, but he added that Ms Dukharan had failed to identify such a “triggering event”. He added: “Our credit rating is not where there is a default of any high probability. Until we get into ‘C’ territory we’re not getting into a high probability of a debt default.”

The Prime Minister has already suggested that his administration would seek to restructure and renegotiate The Bahamas’ debt if the opportunity arises, extending the maturities on existing bond issues and reducing associated interest rates to lower the burden on Bahamian taxpayers. Ms Dukharan’s prediction last year that The Bahamas would suffer a balance of payments crisis and IMF initiative within 12 months has also failed to materialise.

However, Mr Bowe conceded that The Bahamas’ “leaves ourselves exposed” because it does not have the national statistics and fiscal plans that offer “an alternative story to present” to outside observers. “We have to lay out that these are the policies our administration is going to take more comprehensively because the observers, particularly the lenders and creditors, look at how policies work,” he added.

Noting that present yields and interest rates on Bahamian sovereign debt show “no sense of panic or a sell-off” among investors, Mr Bowe said: “We don’t see them pricing in the risk of default. The persons who have the money in the risk are not pricing in a default at the minute.

“We need to get better quality information into the public domain around the statistics and policy actions. We talk about a government’s first 100 days, and what’s going to be critical is a plan of action that is made around how we address the debt-to-GDP ratio and the deficit. 

“We as a country need to be calm and not seek to respond to individuals, but respond to the markets and international observers appropriately. The better the response, the better they will price and the better the result will be.”

As a “low-tax jurisdiction”, Mr Bowe argued that The Bahamas still has multiple options to ward-off a debt default. Apart from new and/or increased taxes, hiring and salary freezes in the public sector remain an option, while the sale of government assets and public-private partnerships (PPPs) remain an option.

“There are government assets available for sale that there’s no inventory of,” he said. “Once we have a proper list of government assets, they can be sold to domestic investors.

“Our conversation needs to be around policy actions developed over the next 18 months. The next Budget needs to cover 18 months. Focusing from January to June will be an exercise in futility; we need to focus on the next 18 months.”


tribanon 1 year ago

Sadly, Dukharan is right and Bowe is wrong as time will all too quickly prove.


DonAnthony 1 year ago

The IMF is not the big bad bogeyman they once were. The sooner they assist us with structural reforms of our economy the better. It’s not a matter of if, just when. We have an almost 50 year record of fiscal malfeasance and an ice cube has a better chance in hell than we have of a PLP government under Brave Davis making the necessary economic reforms on their own initiative.


FrustratedBusinessman 1 year ago

Yes, because they sure did a great job in Jamaica lol.

God forbid that we ever sell our souls to the devil (IMF), there is no guarantee that anything they propose would work.


DonAnthony 1 year ago

Actually they did do a great job in Jamaica. Jamaica significantly reduced debt to GDP under their restructuring. Of course they had a massive setback because of the pandemic but this has nothing to do with the IMF.


FrustratedBusinessman 1 year ago

Go study the Manley and Seaga eras of Jamaica. The IMF has disappointed before.

The IMF will be the death of the working class Bahamian. Income tax and family island property taxes on day one, with more to come. Working class Bahamians are struggling enough as it is, with the young ones abandoning the country if they can. I don't see how anything that the IMF can do will possibly save us.

Our economy is not typical for the world. We have done very well to be the third richest nation in the Americas. The policies that the IMF will try to shove down our throats will destroy the economic prospects for working class Bahamians. I would not even be too concerned with debt-to-GDP being honest with you. The US is looking at scrapping their debt ceiling, and Canada is printing money like there is no tomorrow. Japan at one point had a debt-to-GDP ratio of over 250% during the 08 Recession. What I would be more concerned about is economic growth, job numbers, and bridging the gap between the low average wage and high COL in a way that doesn't wreck the economy.


DonAnthony 1 year ago

That is ancient history. The IMF is much reformed since the time of Manley and Seaga. This recent restructuring was much different than the ones you refer to as the IMF is much more sensitive and nuanced in its approach. In fact it even mandated a certain minimum level of social spending that could be exceeded but not reduced.


FrustratedBusinessman 1 year ago

40-50 years ago is not ancient history lol. It is not some magic cure for the issues we face; on the contrary, it will destroy our nation worse than ever imagined.

Our economy was designed around little to no taxation, that combined with proximity, linguistic, and cultural affinity with the US, made us ripe for tourism and foreign investment. The IMF will destroy our economy overnight by putting in an income tax. Full stop. Most Bahamians make less than 20k a year and simply cannot afford it. Investor permanent residents will flee to another jurisdiction. Many have accounts in Caymans or Panama, but remain here for residency purposes as that is how some countries determine whether you pay or not (US being a key exception, although Trump was talking about changing that). Property taxes for Bahamians on the Family Islands are exactly the opposite of what we should be aiming for long-term. We need to be focusing on getting Bahamians off of Nassau to these other places as Nassau is simply full and it is jacking up the COL way too high. It is bad from a disaster standpoint as well; one Dorian to hit New Providence and we are North Haiti.

Social spending is the exact opposite of what we need. It is why we are so deep in the hole now. We cannot afford to pay for people to eat or give them CERB/CRB. We were in the hole before, but not nearly as deep as we are now. Trying to emulate Canada or the US will only put us in an perpetual state of being heavily in debt.


TalRussell 1 year ago

Howtheever, --- even The Colony's Central Bank is straight up in telling Popoulaces, whilst deposits in Bahamalander dollar deposits placed with a member bank of the DIC is protected up to B$50,000 per depositor per member bank --- It does not guarantee the soundness of individual banks and everything like that and, although banks in The Colony, --- "Does not often fail," --- like any other business and everything like that, it is possible go tits up --- Yes?


realitycheck242 1 year ago

If two investments on the scale of Baha Mar and Atlantis does not happen for the Bahamas by the end of next year then we will be in the hands of the IMF. We need investments that can move our GDP needle in a positive direction bey a minimum of 10% points. Those who were hungry for power and now in power because the D average population will be in for a rude awakening .very soon. The fiscal restructuring policies of the previous government were very sound, they only lacked closing the big investment deals. The new min of investments had better start combing the world for investors who want to leave countries like Hong Kong because of the effect of main land china new hostile policies and get them to relocate their business to the Bahamas preferably in the green economy sectors. Ms Dukharan is right.


FrustratedBusinessman 1 year ago

IFM intervention is still a far ways off. Minnis did not put us in this situation, neither did Brave. This nation's finances were screwed up well before either.

Right now, the government needs to trim the expenses. We are not going to be able to tax our way out of this, nor seemingly bring in enough investment to keep up with the massive expenditures. We have no choice but to trim the budget. In all fairness, nobody ever expected COVID or Dorian to set us back as far as they did, but we are not a G7 nation that can afford to have huge welfare schemes or a large population employed in the civil service.

The UBP left behind a 10mil surplus (close to 80 mil in todays currency) when they left office in 1967. Righting our economy can be done, will the government 1.) have the balls to do it and 2.) do it in a way that doesn't financially wreck the average Bahamian is the question.


Dawes 1 year ago

1) no and 2) they will do that anyway


loudmouthamerican 1 year ago

I am a wealthy American. A lot of people like me around the world would invest heavily into your economy for a second citizenship. I'd gladly buy $300k of your Bahamian bonds at a low (say 1-1.5%) interest and hold them for five years for that passport.

Right now, Turkey has a program where if you invest $250k in real estate, you get a passport. Unlike the other Caribbean countries, it is a real "citizenship by investment" program - instead of just a "passport for a fee". There have been over 20,000 people to do this in Turkey.

Bahamas has a much stronger passport than Turkey. If the government would implement such a deal, and require investors to buy and hold bonds or real estate for citizenship, you'd have $5-10 billion dollars flow into your country in the next few years. Crisis solved!

In addition to the benefit of an easy refinance/restructure of the debt, it would cause heavy capital inflows from wealthy people coming to the Bahamas who would want to build second houses, invest in businesses, and so on. Think about the increase in property taxes from RE values going up - most of that could be paid by us foreigners, who are happy to do it.


ThisIsOurs 12 months ago

Problem not so easily solved.

You cannot change a single variable in an economy and expect everything to be peachy. That is why economists get the big bucks, its never "simple"

After foreign investors were given the right to hold land, the cost of living soared for Bahamians. The sellers realized that they could sell the same property that a Bahamian might have gotten for 50,000 to a rich foreign investor for millions. Tradesmen realized they could earn more behind the gates. The same is happening with air bnb. Sellers see a foreign market willing to pay crazy prices for tiny rental spaces, the spaces low income Bahamians used to access now affordable apartments are becoming scare.

Locals are being priced out of a middle class living and slowly cornered into poverty. This is not good for any society, check all your historical revolts. Some Bahamians might say what you propose is ok because they havent felt a single pinch of the poverty pandemic, its swept Haiti, its in our inner cities and its spreading to middle income neighbourhoods.... Zombie revolutions are just a bunch of hungry deprived people. Zombies destroy everything and gates dont stop them.

It behooves everyone to ensure that there is societal balance, abmnd there are no ginormous gaps between rich and persons at the lower end of the economic spectrum.


birdiestrachan 1 year ago

Mr: Bowe is correct he is a brilliant man. I trust he will advise the Government . The Bahamas need all hands on deck. The Bahamas is all we have.


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