There is a high level of confidence regarding the ability of the country to repay its debt, as evidenced in a new analysis on the Bahamian economy conducted by Moody’s Investors Service, one of the principal and most reputable rating agencies worldwide.
“This means that the prime minister can walk into any lending institution and say ‘Give me a couple hundred million dollars’ and they’d say, ‘You got it Mr. Christie,'” said a local financial analyst after studying the report.
Moody’s reconfirmed the country’s A3 rating, ensuring that it remains the only nation in the hemisphere – other than the United States and Canada – with an A rating.
“The new Progressive Liberal Party government inherits an economy in which national income was boosted to a relatively high level during the 10-year tenure of the Free National Movement Party,” Moody’s concluded.
Former Minister of Finance in the FNM Government Sir William Allen said the report indicates that the previous government had put in place “a fairly sound foundation for the economy going forward.”
“It is very important to have a confirmation of the A3, particularly at this time because the world economy is suffering at the moment,” Sir William said. “We had until the events of September 11, last year, taken the fiscal situation toward balance.
“I think we are in a very good position,” he said.
But while past revenue buoyancy had almost eliminated the budget deficit by fiscal 2000/01, the loss of customs revenues and tourism-related taxes pushed the budget deficit to around 3 percent of GDP in fiscal year 2001/02, the report said.
The new government expects that the 2002/03 fiscal deficit will remain near 3 percent.
The report also said that the new government “faces the task of containing the budget deficit at a time of uncertain tourism prospects and subdued prospects for economic growth.”
But the Minister of Financial Services and Investments Allyson Maynard-Gibson said she did not agree with this particular conclusion reached by Moody’s.
“I do not agree that there are subdued prospects for economic growth,” she said. “In our consultations with the private sector, it is very, very clear that they are most anxious given the outreach and the openness, transparency and willingness to forge close private-public inter-cooperation to expand their capital investment in The Bahamas.
“This will form the basis for huge spin-offs for entrepreneurial Bahamians to take advantage of. And it is our hope – as I said in Exuma last week – that Bahamians will prepare themselves for these unique opportunities.”
The report continued that fiscal policy and government debt management have become key policy challenges for the newly elected government.
“The external environment and the new government’s response to the new economic and regulatory realities will influence the future course of The Bahamas’ ratings,” the analysis said.
The new government has already borrowed $125 million from local foreign banks to make up the shortfall. (That arrangement had been put in place by the FNM government before it was voted out of office.)
“In a year’s time, if it were necessary for the government to go back, say to the international market, and borrow more money, that would not be a problem,” said Julian Francis, governor of the Central Bank of The Bahamas. “The government’s financial position is fundamentally strong.”
Sir William added that the country is still able to command good rates in the market place.
But he warned against too much borrowing.
“As you borrow, you will in fact endanger the
ﾠﾠrating,” Sir William said. “So you have to be very careful. It’s a very dicey thing. It means of course that you have access to markets. You have access at reasonably good rates, but if you use it too much, it changes.”
The report said that the outlook for The Bahamas remains positive because of “the country’s proximity to and high degree of economic integration with the United States; its ability to remain a competitive provider of tourism and financial services; and a track record of prudent economic management.”
It noted that favourable economic performance during the past decade has boosted incomes to one of the highest levels in the Caribbean and Latin American region on a purchasing power parity basis.
The Bahamas has held the A3 rating since 1997, in spite of uncertain economic conditions and the plunge the country’s main sectors took after the September 11, 2001 attacks.
“It is always good for The Bahamas to receive a favourable rating or assessment from a foreign independent assessor of the status and caliber of Moody’s Investors Service, because they look at the country’s economy from an independent prospective,” said Ishmael Lightbourne, a senior partner at PricewaterhouseCoopers and a past president of The Bahamas Chamber of Commerce.
The strengths and opportunities for the economy more than doubled the risks, challenges and constraints.
The report noted that The Bahamas has a relatively low external debt; a stable, democratic political system; enhanced regulatory control over the financial services sector; high per capita income level; a competitive tourism sector relative to other destinations; and institutional and policy capability for balanced and sustainable growth.
But it also pointed out that the country has a narrow economic base highly sensitive to external developments; limited fiscal flexibility; and economic vulnerability to hurricane damage.
“Despite the adverse effects on economic growth and the fiscal position from external events since September 11, 2001, the underlying strength of The Bahamas remains sound,” the analysis said. “The political system is democratic and stable, as is demonstrated by the election in May this year of a new government.”
“I think we should be proud that notwithstanding the impact of 9/11, at this stage, we still remain reasonably sound,” Mr. Lightbourne said.
Real GDP growth contracted by 0.5 percent in 2001 and is expected to grow only by 1 percent in 2002, compared with annual growth of 4.3 percent in the previous five years, according to the analysis.
It also indicated that the economy was dealt additional blows from Hurricane Michelle and the Nassau Straw market fire last year.
“While last year’s external shocks led to a sharp downturn in economic growth, the effects do not yet appear to have translated into a noticeable rise in measured unemployment,” the report said.
The need for diversification of the economy was evident and Moody’s researchers pointed out that Prime Minister Christie also stated the need for diversification in his May Budget speech.
The government has identified E-commerce as strategically important and is enhancing competitiveness in this area by improving the regulatory system and developing physical infrastructure.
Michael Halkitis, parliamentary secretary in the Ministry of Finance, said Thursday that, “The government as facilitator in the digital economy fully appreciates and is committed to providing the infrastructure necessary to position this country as a leading knowledge-based society and e-commerce hub.”
In the Moody’s report, the word on the country’s external payments position was also “relatively strong.”
Official foreign exchange reserves have risen after the post-September 11 shock and remain high relative to external debt. The reserves stand at about $450 million.
