The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s fiscal reform efforts have been praised by CIBC FirstCaribbean’s Canadian parent, which believes the Bahamas’ sovereign rating “measures up pretty well against” over Caribbean nations.

CIBC’s capital markets unit, in a 2015 first quarter assessment of the region, said Value-Added Tax’s (VAT) implementation would improve the Government’s finances “significantly over and above” what was already in the pipeline with the $3.5 billion Baha Mar project.

Although CIBC’s analysis was written before the successive opening delays incurred by Baha Mar, the report is likely to be seized on by the Christie administration as justifying its economic and fiscal reform strategies.

The report, obtained by Tribune Business, even recommended that international investors purchase an’ outstanding Bahamas government bond issue, which yields 6.95 per cent interest and is due to mature in 2029.

“The Government’s implementation of the new Value-Added Tax (VAT) should improve fiscal finances significantly over and above what was surely on route after the completion of the Baha Mar resort. Hence, we still like the Bahamas [2029 bond issue,” CIBC wrote.

“The Bahamas measures up pretty well against other credits in the region, and we expect the Government to reverse the trend of higher debts and deficits of the last few years.”

The Christie administration will likely interpret this as an endorsement of its fiscal policies, and received further encouragement from CIBC’s take on this nation’s tourism prospects.

“Initial data show continued improvements in tourism performance during the first two months of 2015 relative to the same period in 2014,” the report said.

“The Bahamas Hotel and Tourism Association reports that room revenues increased 11 per cent, in line with an 8.2 percentage point rise in the average occupancy rate to 70.5 per cent, and an 8.9 per cent increase in the average daily room rate to US$268.11.”

This followed the 4.5 per cent increase in stopover visitors to the Bahamas for the 10 months to end-October 2015. Hotel room revenue for the full year was up 5 per cent year-over-year, with average occupancies climbing by 4.6 percentage points to 63.4 per cent, and average daily rates (ADRs) ahead by 7 per cent at $300.61.

Nevertheless, the CIBC report also flagged numerous warning signs, especially the 1.5 per cent drop in total outstanding mortgages in 2014.

“Total banking sector domestic credit increased 0.9 per cent between February 2014 and 2015, as a 2.4 per cent increase in Bahamian dollar lending eclipsed a 17.6 per cent decline in foreign currency domestic credit,” the CIBC report said.

“Total private sector credit declined 2.8 per cent as persistent weakness in Bahamian dollar commercial loans (down 15.6 per cent) and mortgages (down 0.4 per cent) outpaced a 1.8 per cent rise in consumer credit.

“Further, while net credit to the central government expanded 17.6 per cent because of greater Bahamian dollar lending and securities, credit to the rest of the public sector declined 12.8 per cent over the same period.”

Despite this, Bahamian commercial banks saw their interest rate spreads increase by 98 basis points - almost a full percentage point - in 2014.

“Average lending rates increased from 10.77 per cent to 11.55 per cent by December 2014, while deposit rates fell 20 basis points to 1.28 per cent,” the CIBC report said.

“Since then, spreads widened 36 basis points during the first two months of 2015 as the rate on loans increased 52 basis points to 12.07 per cent, and deposit rates rose 16 basis points to 1.44 per cent.”

The bank’s analysis also touched on the key, and most pressing issue, for many Bahamians, namely unemployment and the fact the economy is not growing fast enough to deal with this.

“Despite modest economic expansion, the workforce grew faster than new jobs, driving the unemployment rate from 14.3 per cent in May 2014 to 15.7 per cent at the end of November 2014,” CIBC wrote.

“Unemployment among youth aged 15 to 24 increased from 28 per cent to 31 per cent over the same period.”

And, in a further warning on the fiscal front, the CIBC report said: “Having declined to 3.3 per cent of GDP during 2013-2014, the Government’s nominal deficit for the first seven months of the 2014-2015 fiscal year to January 2015 increased by US$48.6 million to US$290.5 million, as increases in both recurrent and capital expenditures outpaced higher revenue intake.

“Total national debt outstanding, excluding contingent liabilities, reached US$5.647 billion by the end of February 2015, 12.4 per cent higher than 12 months earlier. The Government’s external debt, which represents 28.3 per cent of total direct, outstanding obligations, increased 7.1 per cent over the same period.”