Bahamas Faces Possible Downgrade – The Bahama Journal

Posted on 11 July 2017. by Jones Bahamas

Top investment agency Moodys has placed the Baa3 bond and issuer ratings of the government of the Bahamas on review for downgrade.

Moodys, in a recent statement, said the decision to place the ratings on review was prompted by official statements that the Bahamas fiscal position was weaker than previously estimated and that the governments debt ratios will continue to worsen over the coming years.

This diverged from Moodys expectation that the governments debt ratios would stabilize in fiscal 2017, thus supporting the Bahamas Baa3 rating and stable outlook.

Moodys said their review will focus on evaluating the credit risks posed by ongoing economic and fiscal challenges, taking into consideration the recent revelations of fiscal deterioration as well as the new governments proposals to arrest this during the review.

Moodys will also assess how the Bahamas overall credit profile will evolve compared with those of sovereigns rated in the Baa and Ba categories.

The Bahamas long-term local-currency bond and bank deposit country ceiling remain unchanged at A2. The long-term foreign-currency bond and bank deposits ceilings remain unchanged at Baa1 and Baa3, respectively.

The short-term foreign currency bond and bank deposits ceilings remain unchanged at P-2 and P-3 respectively.

As presented in the 2017/18 Budget, the fiscal deficit is expected to fall from an estimated 5.5 percent of the GDP in 2016/17 to 1.0 percent of the GDP by 2019/20 in a no-policy change scenario.

Given the economys weak state, Moodys expects that it will be difficult to meet this deficit target.

While the introduction of a value-added tax has contributed significantly to bolstering the governments revenue base, curbing expenditures remains challenging.

The Bahamas susceptibility to climate-related events such as hurricanes also increases the risks of fiscal slippage, as was the case in 2015 and 2016.

During the review, Moodys will assess the details of the governments fiscal consolidation plan, which the budget communication stated would be developed in the short-term.

In addition to the proposed expenditure and revenue measures that the government will seek to implement to reduce the fiscal deficit, Moodys will assess measures to address the rising sovereign risk posed by contingent liabilities stemming from the broader non-financial public sector, with a stock of debt representing over 17 percent of the GDP, of which about half carries an explicit government guarantee.

In February, Moodys forecasted that the Bahamas fiscal deficit will remain above $300 million for this current budget period, with Hurricane Matthew blowing it slightly higher than the prior year.

The international credit rating agency, in its quarterly assessment of the Bahamas sovereign creditworthiness, gave an insight into the extent of Matthews impact on the governments finances by projecting a deficit equivalent to 3.6 percent of the GDP for 2016-2017.

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Bahamas Faces Possible Downgrade - The Bahama Journal