The international credit rating agency S&P, today, downgraded The Bahamas’ credit rating, from BBB- to BB+, although upgrading the outlook from negative to stable. Other countries rated BB+ include Indonesia, Portugal, Russia and Bulgaria. In its statement, S&P noted that this rating decision stems from lower than expected GDP growth, fiscal consolidation results that are developing at a slower pace than anticipated and certain structural weaknesses that negatively impact economic growth.
The Government is disappointed in this development, and is of the view that S&P’s decision does not give appropriate weight to important developments on the ground, nor The Bahamas’ strong commitment to address its economic and fiscal challenges.
The Government remains focused on its plans to grow the economy, through responsible, balanced and sustainable policy initiatives and measures. The Government recognizes the centrality and imperative of the economic growth objective to reducing domestic economic risk factors:—stronger economic growth is required to generate more job opportunities for Bahamians and to support the near-term goals of a balanced budget and sustainable debt-to-GDP ratios.
The Bahamas’ short- to medium-term prospects for placing the economy on a stronger growth trajectory are more encouraging than they have been since the recent economic and financial crisis, and it is most unfortunate that S&P did not seem to fully consider the impact of the many growth generating initiatives underway. There is now no uncertainty regarding the restart and completion of the Baha Mar project which, alongside the other foreign investment-related projects underway, will help to ignite growth, boost employment, improve business and consumer confidence and contribute to government revenue.
Definitive public statements have now been issued by the new owners of Baha Mar, Chow Tai Fook Enterprises’ (CTFE) Bahamian subsidiary, and almost 1,000 workers are currently on-site engaged in completion activities. With the first phase of Baha Mar’s opening, slated for April 2017, CTFE estimates that, starting next month, 1,500 jobs will be generated for Bahamians, and grow to 3,300 through August 2017. Building on the more than $100 million ex gratia payments made to former employees and creditors, this restart comes with additional capital investments approaching $1 billion that will have significant direct and indirect impacts on the economy.
The Government’s approach to placing the public finances on a stronger footing continues to be a balanced and prudent one. VAT remains the centerpiece revenue source, supported by aggressive tax administration and compliance measures. A strategic programme was recently launched to bring revenue administration processes, tools and techniques in line with international best practices, to safeguard the revenue base. These optimizing initiatives, in the areas of real property taxes, business license, VAT and customs administration, are targeted to generate sizeable additional revenue during the upcoming 6 to 12 months period. On the expenditure side, measures have been taken to rationalize spending through initiatives such as centralized procurement of goods and services and public private partnerships.
The Government is committed to achieving a fiscal balance compatible with an affordable level of debt and one that eventually will support a rebuilding of fiscal buffers to deal with unforeseen circumstances. While events such as the two recent hurricanes, Joaquin and Matthew, have placed additional strain on the Government’s resources and added to the debt stock, the Government is confident that the prospective near-term improvement in economic performance will help to move the country back on track with its medium-term fiscal sustainability objectives. The debt strategy, while focusing on containing the growth in the debt stock, also includes ensuring that state-owned enterprises are more accountable.
On the financial front, important steps have been taken by the various regulatory authorities to safeguard and strengthen financial sector stability. The Government’s Mortgage Relief Programme, together with other private sector measures to support home ownership, will contribute to the resilience of the financial sector and the resumption in bank lending.
Reducing structural impediments to private sector growth and enhancing the external competitiveness of the Bahamian economy remain key priorities of the Government. Through the soon to be released National Development Plan, the Government is determined to pursue, with urgency, sustainable economic reforms and responsible policy initiatives to further unlock The Bahamas’ growth potential—by way of continued investment in economic infrastructure, and reforms to improve the business environment and energy sector.
It is the Government’s view that The Bahamas’ short-to medium term prospects are positive, and the immediate focus of policy makers is on ensuring that the many growth promoting initiatives underway take root and yield the expected dividends. The facts are compelling that The Bahamas remains an attractive jurisdiction for foreign investments. As S&P monitors the impact of these various macroeconomic and fiscal measures and projects over the next 6 to 12 months, the Government is confident that The Bahamas will be able to secure an improved rating outcome.