Prime Minister
and Minister of Finance
Communication on The Bahamas’ Credit Ratings and the Economic and Fiscal Outlook
September 2, 2015
I. Introduction
Mr. Speaker, Honourable Members will have seen that, in the last week, two of the major international credit rating agencies released updates on their assessments of the credit rating of The Bahamas.
I want to take this opportunity to provide Honourable Members and the Bahamian public with additional, more detailed information on these rating actions.
In so doing, I will present these ratings in their proper context in relation to the economic and fiscal policy framework that the Government is pursuing. That, in turn, will permit me to explain why the Government remains justifiably confident in our growth and employment prospects going forward.
To summarize the ratings reports, Standard and Poor’s (S&P) announced on August 25th that it was lowering the country’s credit rating by one notch, though it still remains at investment grade. The outlook for the rating remains negative.
For its part, Moody’s announced on August 31st that it was upholding the country’s investment grade credit rating and maintaining a stable ratings outlook.
One of the essential, fundamental differences in these assessments relates to each agency’s views on prospects for the Baha Mar project and its implications for economic growth and fiscal prospects.
While S&P does place some emphasis on longer term economic vulnerabilities, their main focus is on the short term impact of the Baha Mar delay. Indeed, they hold the rather pessimistic view that the project will not be completed quickly and that, once completed, its performance will be hindered for some time.
Mr. Speaker, let there be no doubt, either in this Honourable House or among the Bahamian public, that the Government is firmly committed to a timely resolution of the Baha Mar matter and the completion of the project, in a manner that will serve the best interests of our country.
Despite that, S&P takes a dim view of prospects for the project and suggests that, as a result, real GDP per capita in The Bahamas will barely grow at all over the next several years.
Mr. Speaker, such a downbeat assessment simply does not match up to reality. And, in fact, it also flies in the face of some of the evidence that S&P itself presents in its report.
It is widely acknowledged that a prime prerequisite for a solid credit rating, strong investor confidence and buoyant economic growth is a sound and sustainable public finance framework.
The Government has been working diligently over the past three years to effect critical reforms to the major components of the fiscal accounts, on both the expenditure and revenue sides.
To that end, we have been pursuing a detailed and transparent Medium Term Fiscal Consolidation Plan designed to gradually reduce and eliminate the Deficit and return the Debt-to-GDP ratio to lower, more desirable levels.
Mr. Speaker that plan is working and we are seeing very concrete fiscal progress.
Our fiscal progress is indeed prominently acknowledged by S&P in its report. They state, and I quote:
“the government has made progress improving the country’s fiscal deficits, particularly through the introduction of the value-added tax…we believe that this, along with formalization spillovers from the modernized tax systems, will contribute to deceleration in the increase of government debt…this progress has contributed to our decision to keep the rating of The Bahamas in the investment-grade category.”
Mr. Speaker, the Government is also fully cognizant of the structural rigidities, or long-term economic vulnerabilities in the S&P terminology, that must be addressed in this country if we are to achieve the much–needed strengthening of economic growth that is required not only top absorb the healthy growth of our labour force but also significantly reduce our national rate of unemployment.
Indeed, we spoke at length to those various rigidities and the policies that their amelioration necessitates in our Charter for Governance. The in-depth exercise that has been underway since last year on the elaboration of a National Development Plan for The Bahamas seeks to address the weaknesses that have been identified and present an action plan for more buoyant and sustained growth of our economy and employment opportunities.
It is most unfortunate that S&P failed to fully and properly account for the Government’s proactive and dynamic growth agenda in its analysis, to the same extent that it acknowledged the success of our fiscal plan. I dare say that, if it had, its conclusions would have justifiably been more positive.
In this context, I would note that, following the S&P report, CIBC World Markets put out its own assessment of economic and fiscal prospects in The Bahamas in which it concluded that our economic recovery continues and will be buttressed by the ongoing strong recovery in the U.S. The pace of tourism activity has picked up and should continue to grow. They cite the decline in the national rate of unemployment to 12 per cent in May of 2015 and the fact that youth unemployment, while still high, has nonetheless fallen from 31 per cent to 25.3 per cent.
CIBC goes on to assert that we have succeeded both in bolstering revenues with VAT introduction and keeping the growth in expenditure low. These developments, they claim, underlie their so-called ‘bullish’ views about our prospects. In their words:
“The Bahamas appears to be moving in the right direction”.
The Moody’s assessment also takes a somewhat more positive view of our economic and fiscal prospects. They also cite the important progress that we have made in terms of fiscal consolidation, underpinned by successful VAT implementation, and assert that this will contribute to the stabilization of the debt ratio which, having peaked in 2014, is poised to decline steadily going forward.
As for the economy, Moody’s notes that, as tourism performance has improved, our economy has shown definite signs of recovery. They assert that, going forward, they expect the economy to post higher growth rates than in recent years, on the basis of yet stronger tourism flows and continued foreign investment into the tourism sector.
While they see the Baha Mar delay as leading to a postponement of its economic impact, they go on to forecast that real economic growth of over 2 per cent, and up to 2.5 per cent per year, can be expected in the two years following its opening.
Building on their more upbeat assessment, they further state that, despite the difficulties in respect of Baha Mar, they believe that The Bahamas remains an attractive destination for investors.
In their estimation, the Bahamas Government scores a “Very High” rating in terms of institutional strength, as we score favourably on the World Bank’s governance indicators. According to these, we have a strong track record in respect of policy predictability, transparency and sound macroeconomic policy. Again, these are important factors in enhancing investor confidence and our economic growth prospects.
The Moody’s report goes on to favourably review our fiscal policies, stating that the introduction of the Medium Term Fiscal Consolidation Plan has presented clear guidance on the policy framework that the Government if pursuing to improve the public finances.
Mr. Speaker, I have taken the time today to review these recent reports from the ratings agencies because I believe it is important to clearly spell out all of the relevant facts about the economic and fiscal prospects for our country.
The Government has a clear vision of the policy framework that is required to both redress the public finances and bolster growth and employment. We are actively and doggedly pursuing the various multi-faceted policies that comprise that framework.
I am confident that we are on the cusp of a stronger, more prosperous and modern Bahamas for all Bahamians.
