The Tribune

By NATARIO McKENZIE


Tribune Business Reporter


nmckenzie@tribunemedia.net

A Cabinet minister yesterday said the Government was “not totally surprised” over Moody’s latest decision to downgrade the Bahamas’ creditworthiness, slashing its ‘issuer’ and ‘unsecured’ credit ratings by one notch from Baa1 to Baa2.

Michael Halkitis, minister of state for finance, said: “Moody’s were here about a month and six weeks ago to conduct a report. They had us at ‘Baa1’ since December 2012, and their timetable to maintain a rating is around the maximum of 18 months, so we expected a change.

“We are not totally surprised. The positive thing is that it was a one-notch adjustment. We maintained the investment grade and we have a stable outlook for the long-term prospects of the economy, so while you never want to be downgraded, we think this is among the best solutions we could have.

“What again is positive about the report is not only is the outlook favourable, but they endorsed the fiscal reform programme of the Government - what we are doing to control expenditure, improve revenue administration and improve the economy,” the Minister added.

“So that is behind us. We have the date point to the implementation of the VAT, amongst the other reforms ,as important to maintain he ratings, and we’re going to be disciplined continuing along that trend.”

Explaining the rationale for the downgrade to ‘Baa2’, which brings its Bahamas’ sovereign rating into line with its fellow rating agency, Standard & Poor’s (S&P), Moody’s said “key drivers” were the continued deterioration in the Government’s financial position and the weak economic growth that had exacerbated this.

It added that the Bahamas’ “debt and interest burdens now exceeds those of most Baa-rated peers”.

“The first key driver for today’s rating action is related to the weakening of the Bahamian government’s fiscal strength, as reflected by the significant increase in the sovereign’s debt and interest burdens,” Moody’s said.

“The Government’s debt-to-GDP ratio has increased from 31.7 per cent in 2007 to 59 per cent in 2013, and Moody’s expects it to peak in 2015. At this level, it is almost 20 percentage points above the median for Baa-rated sovereigns (39.5 per cent in 2013).”
 Moody’s added that interest (debt servicing) payments now consumed 14 per cent of government revenues, compared to 9.3 per cent in 2007, leaving it with little room to deal with unexpected fiscal or economic shocks in the future.

“The second key driver is the weak economic recovery,” Moody’s said. “Following a recession in 2008-2009, the Bahamian economy has averaged annual growth of just 1.1 per cent in the four years through 2013.

“The economy’s underperformance has negatively affected government revenues, and it has also led to higher current and capital expenditures by the Government in order to support the economy.

“As a consequence, the fiscal deficit widened to 6.3 per cent of GDP in fiscal 2012-2013. While Moody’s estimates that the deficit narrowed to 5.4 per cent in fiscal 2013-2014, this shortfall is still more than double the median for similarly rated peers.”
 Mr Halkitis said yesterday: “Since 2007, the debt--to-GDP ration of the Government was around 32 per cent. Now it’s in the region of 59-60 per cent, so the debt has gone up over the years.

“T hat’s what they look at; percentage of revenue you’re actually collecting; percentage of revenue you are spending to service your debt; growth rate of the economy.

“They compare it to other countries, and they put you in a particular ratings group. What they said to us is that over the years our debt has risen, and in comparison to other countries in the grouping we were a little high, so they had to adjust our rating.

“Looking at the positive coming out of that, a one-notch adjustment with a stable outlook and an endorsement of our fiscal reform programme, I think once we are disciplined in what we are doing we will be OK.”