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Bahamas faces 1-in-3 chance of ratings downgrade
Published on October 2, 2012 Email To Friend    Print Version

By Jeffrey Todd
Nassau Guardian Business Editor

NASSAU, Bahamas -- The Bahamas has a one-in-three chance of being downgraded following Standard & Poor's (S&P) revised outlook of the economy from stable to negative.

Dr Lisa Schineller, managing director of sovereign ratings and economist for Latin America, told Guardian Business from New York that Wall Street is looking for "signals" that the government can and will place a cap on debt. She acknowledged that there appears to be little that The Bahamas can do in the near term to change course. Instead, the rating agency anticipates a "time lag" before a true correction can be made.

"We expect improvement as the road works fall off, but beyond that, it still leaves the deficit at higher levels," Schineller explained. "The negative outlook means there is at least a one-in-three chance there could be a downgrade. The risk is more towards the downside. We're waiting for some sort of result."

Noting it could take two or three years before a true rebound is experienced, the S&P analyst felt tax reform "seems to be the key issue". The dialogue is only just beginning, however, and putting together the white paper, generating discussion and implementing the reforms is likely a "multi-year process".

Schineller told Guardian Business that S&P hoped the size of the debt had peaked, and started to edge down. Nevertheless, she said the government appears committed to improving the country's fiscal position.

The road works is truly the main stumbling block in terms of capital expenditures impacting the budget, she noted.

Michael Halkitis, the state minister of finance, said last week that the controversial project was definitely being “felt”. He did not dispute the findings of Wall Street, calling them “expected”. However, the government has squarely placed the majority of blame on the previous administration.

“We have to address the under-performance of revenue; we have to address the issue of growing the economy, and we have to contain expenditure. And we are very aggressively addressing that,” Halkitis said.

“That is the right formula for success.”

When asked about the Mortgage Relief Plan, Schineller did not consider it a "significant new spending item".

Likewise, the S&P analyst felt the government's negotiations with Bahamas Telecommunications Company (BTC) to seize back majority control were not an immediate cause for concern.

"I think the bigger picture issue is their strategy on the fiscal side. The government ran on this platform. It was well known. And an important element is that all signs show they haven't tried to adjust other contracts. It is not part of a broader revision," according to the Wall Street analyst.

In the near term, she told Guardian Business that the government will likely focus on bringing investment into the country and introduce additional efficiencies. She explained that the public corporations appear to be a source of debt, and efforts to "clean them up and become more transparent would certainly be an aspect of preventing the deterioration of the fiscal profile".

She also made reference to the customs reform, as it relates to strengthening the ability to collect revenue and protect the borders. The Bahamas signed a $16.5 million loan with the Inter-American Development Bank (IDB) earlier this year, to that effect.

"We are looking for positive signals over the next few years, she said.

S&P revised the country's outlook from stable to negative last week. The report urged government to create proactive policies to reduce debt. Latest figures peg the fiscal deficit at $550 million. Government debt is forecast at $4.607 billion, or 54.57 percent of GDP.

Republished with permission of the Nassau Guardian
Reads: 2942

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