The government’s prudent fiscal practices have secured for the country a good credit rating, therefore the administration of Prime Minister Perry Christie should have no problems securing the $200 million it intends to raise on the international market, Central Bank Governor Julian Francis said Tuesday.
“One of the reasons why The Bahamas’ credit is so well accepted in the international market is that the market perceives that The Bahamas government is very prudent and responsible in the way it borrows money,” Mr. Francis said in an interview with the Bahama Journal.
Last September, Moody’s Investor Service, one of the principal and most reputable rating agencies worldwide reconfirmed the country’s A3 rating, ensuring that it remained the only nation in the Western Hemisphere, other than the United States and Canada, with an A rating.
This so-called investment grade rating is attractive to investors, meaning that The Bahamas has access to a very large pool of money, Mr. Francis explained.
“The managers of this money, they’re interested in investing in obligations issued by countries like The Bahamas, which means that they are willing to compete to get this kind of investment into their portfolios,” he said. “So The Bahamas has access to very cheap money or cheaper money relative to other countries that are not rated as well as The Bahamas is rated.”
More recently, the International Monetary Fund advised the government to take advantage of this favourable rating and borrow at longer repayment terms.
Because there is such a high level of confidence regarding the ability of the country to repay its debt, the government intends to float a bond issue in the New York Market.
The plan is to raise the $200 million to repay the present short-term loan of $125 million borrowed last year from international banks that have a presence in The Bahamas. The financing – which was arranged by the previous administration – was needed to bail the government out of financial difficulties that resulted from the September 2001 terrorist attacks on the United States.
The repayment of the $125 million loan is only 5 years which, according to the prime minister, is a short repayment period and may result in a considerable budgetary burden for the country.
During his budget communication two weeks ago, Mr. Christie noted that long-term U.S. interest rates are at low levels.
He said $75 million of the money raised would go toward financing the 2003-2004 budget. The longer repayment period would mean that the government would have more money on hand to meet its obligations – like carrying out much-needed capital projects such as repairing docks, paving roads and building schools, as well as delivering on promised salary increases for civil servants.
The prime minister said bankers recommended that The Bahamas should float the bond issue because its “track record is sufficiently impressive, and the prospects for the Bahamian economy [are] sufficiently strong.”
Mr. Francis said the international market is looking at the country’s new budget and the way the government has structured its spending plan in certain “prudent limits.”
He said, “The fact that the government has made a very important commitment to reducing or to maintaining its expenditure…is something which sends a very strong, positive single to the international market and adds to the acceptability of The Bahamas’ credit in the international market.
“As long as the government is seen to be managing its finances in a responsible way, and as long as our economy continues to operate properly, even in very difficult circumstances around us, we should have no difficulty being accepted in the markets.”
The Central Bank Governor pointed out that The Bahamas is in a more favourable position than many Caribbean nations as far as its credit worthiness is concerned.
“It would be interesting to note that there are some countries in the Caribbean region that cannot issue bonds,” Mr. Francis pointed out, “the market would not accept their bonds at any interest rate. But The Bahamas would have no difficulty issuing bonds at a very, very attractive interest rate.”
As long as the bonds are outstanding, the interest rate will remain fixed. So the government recognizes that if it can lock in a very low interest rate over the life of the bond, that would be beneficial.
In 1997, The Bahamas issued similar bonds that were quickly taken up by the market. At that time, Mr. Francis said the government could have easily sold considerably more of its obligations.
The market the government is seeking to tap into is hungry for good investments, he said. Mr. Francis added that over the last 10 years, the market has been “very interested” in holding Bahamas government obligation.
“The same thing is true at the moment,” he said.
The Bahama Journal
