Sovereign default ‘outside the realm’ of fiscal possibility – Bahamas Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A top Ministry of Finance official has dismissed assertions by a top Caribbean economist that The Bahamas is at risk of a sovereign debt default as early as 2021 as "outside the realm of fiscal possibilities".

Marlon Johnson, the acting financial secretary, told Tribune Business that the position voiced by Marla Dukharan, the former Royal Bank of Canada (RBC) chief regional economist, had "extremely little chance of happening".

Ms Dukharan, now an RF Merchant Bank & Trust director, had echoed comments she gave previously this year in also asserting to a webinar given by that institution last week that The Bahamas was likely to find itself in an International Monetary Fund (IMF) structural adjustment programme next year due to the drying up of its tourism-related foreign currency inflows.

Speaking after the Ministry of Finance rejected her views, branding them "unreasonably alarmist", Mr Johnson said Ms Dukharan had not provided any data or evidence to support the claim that The Bahamas would miss a scheduled payment on the Government's $9bn-plus debt.

"There is extremely little chance of that happening," he told this newspaper of a Bahamian sovereign debt default. "For all practical purposes it isn't within the realms of fiscal possibility. There are enough fiscal levers that the Government can make use of, and short-term adjustments government can make, to address it.

"Our foreign reserves still remain at high levels, so we are in position to meet our obligations now and for the foreseeable future." Mr Johnson also queried why, if The Bahamas faced the dangers outlined by Ms Dukharan, foreign investors bought a further $225m worth of government bonds at an interest rate 125 basis points lower than the rate they demanded less than two months earlier.

"The Ministry isn't particularly concerned regarding international investors and the like," he added of Ms Dukharan's comments. "They have their information, and assessment of that information, that undergirds their sentiment towards the Bahamas' market.

"They've just expressed that in the fact the Government successfully was able to obtain additional financing at rates lower than they were several months ago. The proof of the pudding is that private investors don't share the sentiment that a default is imminent otherwise they would not have provided credit to the country."

Mr Johnson, saying this proved The Bahamas maintained its access to international financial markets and was "not even close to some of the jurisdictions more stretched than we are", said neither the International Monetary Fund (IMF) and credit rating agencies - Moody's and Standard & Poor's (S&P) - had raised concerns about an imminent Bahamian sovereign default in their recent assessments.

"The important thing is to ensure Bahamians understand notwithstanding what is happening there is commitment on the part of the Government to remain fiscally prudent and take whatever action is necessary to protect the country from a fiscal standpoint," Mr Johnson said.

However, Ms Dukharan's comments serve as a timely warning of what might happen - short term or further out - if The Bahamas does not swiftly bring its fiscal deficits and $10bn-plus national debt under control once COVID-19 has passed.

The Ministry of Finance, in its statement, admitted that The Bahamas is "not out of the woods", but argued that the economy is "not in the danger zone". It said: "Some countries in the region have debt levels of 100 percent of GDP and beyond. The Bahamas is nowhere near that level, even though its debt level ratios have increased because of the pandemic.

"The Government has confidence that the economy will rebound, and is seeking to ensure that this rebound is resilient and durable. In keeping with the Resilient Bahamas budget plan, the Government is practicing expenditure restraint wherever possible, and has indicated its willingness to take measures to protect the countrys fiscal health.

"These measures range from addressing the reform of state-owned enterprises to release fiscal space to cover other priority needs of the Government; to bringing more efficiency in the delivery of government services and processes; to reducing waste in expenditures and ensuring efficiency in revenue administration and the adequacy of our tax system to support the operations of the Government."

The Ministry continued: "The country does have high exposure to externalities because of its openness and heavy reliance on tourism, but notwithstanding the pandemic, the tourism model is still viable and has proven itself to be resilient.

"This model has brought with it strong foreign and local investment activity, through the creation of hotels and other facilities, which offers both important short and long term employment opportunities, and serves as a catalyst to other high value activities, such as the second homes market and linkages with the financial services sector.

"Indeed, there remains an active pipeline of ongoing significant domestic and foreign commercial investment projects which support a strong and sustained economic recovery as we emerge from the pandemic."

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Sovereign default 'outside the realm' of fiscal possibility - Bahamas Tribune