The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Wall Street credit rating agency yesterday said it would likely downgrade its 2013 economic growth projections for the Bahamas, given “very subdued” economic activity and a “softer” tourism sector.

Lisa Schineller, Standard & Poor’s (S&P) leading analyst on the Bahamas, told Tribune Business that while there was “a lot of hope” that Baha Mar would spark the economy come 2015, its construction activities had yet to produce a ‘trickle down’ impact.

And, while indicating that there would be no immediate change to the Bahamas’ sovereign credit rating and S&P’s current ‘negative’ outlook on this country, Ms Schineller joined the private sector in calling for “more clarity” on the Government’s Value-Added Tax (VAT) plan.

She added that while the Government’s fiscal consolidation plans seemed “a little aggressive”, the Bahamas was in “a Catch 22” and had little choice but to move quickly to arrest its fiscal decline.

Ms Schineller pointed to the example of Barbados, which had adopted a much slower fiscal reform pace, and was now paying the price via a debt-to-GDP ratio of around 100 per cent and stagnant economic growth.

Describing S&P’s initial assessment of the Bahamas’ economic performance, and fiscal situation, as “mixed”, Ms Schineller disclosed that the rating agency would “probably move down” its 2013 prediction that this nation would enjoy 2.5 per cent GDP growth.

“Economic activity seems very subdued, and it seems like the potential benefits from Baha Mar have not made their way into the economy yet, possibly because of the Chinese effect,” she told Tribune Business.

Ms Schineller added that the S&P team gained an insight into the “overall softness” of the Bahamian economy when it visited Nassau last month for its annual series of meetings and assessments on this nation.

“The tourism sector seems softer than last year. That’s the perception,” Ms Schineller told Tribune Business. “The weakness in tourism is definitely stronger than last year, in terms of stopovers.”

“There’s a lot hope on the impulse that could be coming from Baha Mar as they start hiring.”

Acknowledging that “the eggs are in the Baha Mar basket” from a macroeconomic question, she added that another unanswered question was whether the $2.6 billion Cable Beach development would grow the high-end visitor market “rather than take away from Atlantis”.

“That’s only what we’re really going to know with time,” Ms Schineller said. “Baha Mar doesn’t think they’re a substitute; they think they are adding on as a complement.

“But there’s a question as to where the tourist base will come from.”

On the fiscal front, Ms Schineller said S&P had heard different views from the private sector on the Government’s “aggressive timeframe” for VAT implementation, and whether this would happen by the July 1, 2014, target date.

“From the Government’s point of view, it makes sense to want to do this sooner rather than later,” she added of tax reform.

The Christie government, the S&P analyst said, had embarked on a “more aggressive schedule” for fiscal reform compared to 12 months ago.

“When they came in they set a much slower process, and now it seems a much more speeded up process,” Ms Schineller told Tribune Business.

“The Government seems to suggest they are very interested in correcting the fiscal stance, including on the spending side. The view from the private sector is that they’re not doing enough on that side.”

While other Caribbean nations had implemented their own versions of VAT in similar timeframes to the Bahamas, Ms Schineller added that her voice to those calling for the Government to publish the necessary draft legislation and regulations,.

“It would be great to see the VAT proposal and get a little more clarity on that,” she said, adding that it was still unclear how much revenue the new tax would raise.

“I think they could be a little aggressive,” Ms Schineller added of the Government’s fiscal targets and timelines, adding that she also wanted to see numbers showing how the Christie administration had managed to beat its projected fiscal deficit of $550 million for the 2012-2013 Budget year.

Noting that the “continued underperformance on revenue underscores the need for VAT”, the S&P analyst suggested that the Bahamas had little option but to go in this direction.

“I’m not sure there’s a choice,” Ms Schineller told Tribune Business. “This is a Catch-22. Barbados maybe took a slower approach, and things didn’t work out too well there. There’s not a perfect formula.”