Moody’s has affirmed the Bahamas’ A3 government bond ratings but revised its outlook to negative from stable. The negative outlook also applies to all the country ceilings including the ceiling for the off-shore banking sector.
The main triggers for today’s action are as follows:
1. The significant run up in government debt levels in recent years;
2. The country’s limited growth prospects;
3. The challenges the government is likely to face in raising revenues.
As a result, Moody’s expects that the government will have difficulty achieving a meaningful reduction in its debt levels in the near-to-medium term.
The negative outlook reflects Moody’s expectation that given the country’s limited growth prospects, the government will have difficulty achieving a meaningful reduction in currently elevated debt levels in the near-to-medium term unless it is able to significantly increase revenues. While the pace of the increase in the government’s debt levels is likely to slow in the coming years, a failure by the government to reverse the recent trend of rising debt would likely result in a downgrade of the Bahamas’ rating. In order for the outlook to return to stable, the government would need to demonstrate a credible plan not just for stabilizing debt, but for reducing it to a level more consistent with the current A3 rating.
