The government will not raise taxes or introduce austerity measures as a result of a credit rating downgrade by the international agency Moody’s, Minister of State for Finance Michael Halkitis said yesterday.
“We think we are not quite out of the woods in terms of the recession and the low growth, and we don’t want to run the risk of pushing the country back into a recession by increasing the level of taxes,” said Halkitis at the Ministry of Finance.
On Thursday, Moody’s downgraded the country’s credit rating from A3 to Baa1.
In addition, Moody’s said the country’s economic outlook remains negative.
“We see limited prospects for the fiscal consolidation necessary to strengthen the government’s balance sheet and stabilize debt levels,” said the Moody’s rating action.
Halkitis said the government has to do a better job of debt management and revenue growth.
He said the government will focus on gradually reducing expenditure, raising revenue and growing the economy.
“You would have made a mistake if you think you can go in and start to slash the budget because, inevitably due to the nature of our budget, that means you are sending people home and you’re stopping work,” Halkitis said.
“It’s counter productive. It means your economy stays in recession longer. We think the approach that we have adopted to take this multi-approach is the right approach and we promise we are going to be disciplined in implementing it and we are going to achieve results in the next few years.”
He said the government will meet next week to discuss ways to lower energy costs and complete the white paper on tax reform.
One of the factors that will influence future ratings are government corporations that operate at a loss, such as the Bahamas Electricity Corporation, Moody’s said.
Halkitis said the government has to put the corporations on a better financial footing.
“We’ve been saying that for years (but) it’s not an easy process,” he said.
“But as I said earlier, it is not something that can be kicked down the road because not only are you talking about your annual transfers to these companies, you are talking about the debt of these corporations (and)…making sure that in their day-to-day operations they are maximizing their resources.”
Moody’s said the downgrade incorporates a marked deterioration of the government’s financial balance sheet over the past five years.
Free National Movement (FNM) Leader Dr. Hubert Minnis said yesterday
the Ingraham administration did what had to be done.
“We were faced with a recession, not only in The Bahamas, but the rest of the world,” he said.
“We did what we thought was necessary.
“We thought, just like the rest of the world, that the recession would have lasted for a shorter term, two to three years.
“The benefits you see from our projects today are minimized because the recession continued. If it had broken, you would have had a greater benefit and we would have been by far, better off today.”
But Halkitis said the Christie administration inherited the 2012/2013 budget with little “wiggle room” to implement cuts.
He said he did not want to make the issue a political one though.
“If you read the report, Moody’s said from 2007 the debt to GDP was 31 percent, now it’s 53,” he said.
“To be quite blunt that’s not on our watch. I don’t want to dwell on that; we have to move forward.
“The fact of the matter is we are in the chair; the Bahamians are going to look to us for results.”
Halkitis said the government may see an increase in borrowing costs as Standard & Poor’s downgraded the country late last year.
By Travis Cartwright-Carroll
Guardian Staff Reporter
