New York, August 31, 2011 — 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.
RATINGS RATIONALE
The central government of the Bahamas’ debt increased by almost 150% over the past decade to nearly 50% of GDP at end-2010. Debt rose steadily between 2000 and 2008, but over 40% of the increase occurred in the past two years alone. As a result, the Bahamas’ debt levels, which were at the median for its rating range until 2006, are now nearly 40% higher than the median. Its relatively high wealth levels – the Bahamas’ GDP/capita is nearly twice the median for the rating range – enable the Bahamas to support a somewhat higher level of debt at a given rating level relative to other countries, but not 40% higher.
Furthermore, given the Bahamas’ historically low growth rates — its economy has grown a cumulative total of just a little over 6% over the past ten years — it is unlikely that it will be able to grow out of its debt burden, notwithstanding certain recent developments that may give a lift to the economy over the next few years. The Bahamas’ economy is highly dependent on tourism, particularly from the U.S. – the near-term economic prospects of which appear increasingly uncertain. In addition, the off-shore financial sector, the Bahamas’ second most important industry, is facing a rising degree of competition.
Consequently, the only way that debt levels will decrease is if the government is able to reverse the fiscal deficits it has generated over the past several years and begin to repay a portion of its debt. With expenditures still quite low despite recent increases, in all likelihood the government will have to rely on tax increases and/or the introduction of new taxes in order to do accomplish this.
While the high degree of political consensus that has historically characterized the country remains one of its most significant credit strengths, Moody’s believes that tax increases could nevertheless become politically contentious and difficult to implement.
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.
The principal methodology used in this rating was “Moody’s Sovereign Bond Methodology” published in September 2008.
Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.
New York
Aaron Freedman
Vice President – Senior Analyst
Financial Institutions Group
Moody’s Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Bart Oosterveld
MD – Sovereign Risk
Financial Institutions Group
Moody’s Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
The Government of the Bahamas responds to Moody’s
Moody’s Affirms Bahamas’ A3 Government Bond Ratings
Aug 31, 2011 – 9:16:56 PM
The Government of The Bahamas is pleased to learn that Moody’s has affirmed The Bahamas’ A3 bond ratings, which reaffirms the credit profile of the country. The Government also acknowledges the rating agency’s revised outlook of the Bahamian economy from stable to negative. The recent global economic and financial crisis profoundly impacted the Bahamian economy and required extraordinary levels of spending on the part of the Government to safeguard the financial system, boost economic activity and provide assistance to Bahamians badly in need of help in these trying times, this at a time when government revenue experienced precipitous declines. The unusually high rise in debt levels therefore was not surprising and in fact forecasted by the Government in light of the worse global economic and financial crisis since The Great Depression. Despite this, we maintain in the circumstances a debt-to-GDP ratio that is one of the lowest in our region.
This notwithstanding, the Government emphasizes our continuing goals to: (1) Reduce the level of deficit spending, as is proposed in the 2011/2012 fiscal budget relative to the crisis period, (2) Reduce the growth rate of the debt- to-GDP ratio as again is proposed in the current budget; and (3) Eventually decrease the debt- to-GDP levels in order to reestablish the fiscal space the country enjoyed prior to the onset of the crisis. We acknowledge that there are challenges in the global economic environment generally, but more particularly that of the United States of America to pursuing these aims but our focus in achieving them will not be diminished. Both the medium term and long term wellbeing of our people depend on our achieving these objectives.
Our efforts in this regard are focused on promoting broad economic growth through innovative marketing programmes in tourism, pursuit of new opportunities for international financial services, increased investment promotion, expanding support to and opportunities for our small and medium size enterprises, increasing the ease with which business is done in The Bahamas, so as to improve our profile as a prime jurisdiction within which to do business; modernizing our nation’s infrastructure; and pursuing a fiscal policy that reduces our debt burden and creates an optimum environment for economic growth and prosperity for our people throughout our commonwealth. To these we are committed.
it’s time that we get rid of these old fellas who don’t want to change the way we do business or can’t change the way they do business.we have leaders stuck in a 40 year cycle and the only way things change is to put young minds who can see 10-20 years down the the road and impliment real structure and plans for this country
They probably hear that fella talking about 51% is the same as 49%.
Sounds like we will be paying new taxes in the near future.
Cooke, you got that right. Listen carefully! Power is sweet. The ONLY way these old fellas giving up power is when they fall ill or fall down dead. That’s the only way we gonna see any real change in leadership or potential younger candidates around here.
What a failed bunch of incompetent “outgoing” FNM cabinet ministers. Now Bahamians have a better understanding why they stood up at a FNM Rally and addressed the Haitians as their brothers and sisters, cause come the 2012 General Reelections the Haitians with their new Bahamian Passports in hand will be the only Brothers and Sisters left in the FNM party of supporters who will be left vote in the party to for them
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