Today, The Guardian runs a story on the state of our financial-services sector, which provides vital background to the complex international consultations taking place regarding our second-biggest income earner.
The fact that financial services account for just 15 per cent of our gross domestic product and directly employs a relatively small number of people is somewhat misleading. As the largest offshore centre in the region, the sector provides a very high profile for The Bahamas, attracting the attention of foreign investors as well as high-rolling tourists.
The well-paid people who process these billions of dollars from around the world through our offshore services help create other jobs throughout the economy. And the sector produces business and growth opportunities for many related professions such as accounting and law.
Most importantly, international credit rating agencies (such as Moody's) cite our ability to remain a competitive provider of financial services as one of our main economic strengths. Moody's recently downgraded The Bahamas' credit rating outlook from "positive" to "stable," noting that favourable budgetary trends had yet to be restored following the sharp economic shock experienced after 9/11.
"The underlying strengths of The Bahamas and the preservation of a relatively strong external position support a stable outlook, although the economy faces challenges posed by the effects on the tourism sector of terrorism and geopolitical uncertainties," the Moody report published on June 26 said.
"The government faces the task of containing larger fiscal deficits at a time of uncertain tourism prospects and subdued prospects for economic growth. The government's response to the new international financial regulatory regime, and its ability to manage economic liberalization as its seeks WTO membership, will influence Moody's credit assessment of The Bahamas."
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 report said, and if we are successful in cutting the fiscal deficit and improving the public sector debt position, our rating could go up.
But the rating could also come under pressure from "fiscal slippage and a significant buildup in government debt." Given the narrow revenue base, the report said, a much greater level of debt would be hard to sustain. Slippage in the regulation of financial services would be viewed as negative development.
We strongly support the government's prudent and conservative fiscal approach. And we think that more creative thinking in terms of the public service and untouchable public corporations would add to its own political credit rating over the long haul.
Editorial, The Nassau Guardian
