The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Grand Bahama Chamber of Commerce’s president yesterday expressed fears that Moody’s will follow its competitor and downgrade this nation’s sovereign credit rating in 2016, given that Baha Mar’s fate will require “a lengthy period” to resolve.

Kevin Seymour told Tribune Business that Moody’s would find it virtually impossible to ignore Standard & Poor’s (S&P) lead, given that finding a solution to the $3.5 billion Cable Beach impasse would “drag into 2016”.

Moody’s effectively ‘deferred’ any action on the Bahamas’ sovereign credit rating until mid-2016, giving this nation and itself time to see how quickly a Baha Mar resolution would emerge, and how it would be structured, whole crediting the Government for implementing VAT.

Mr Seymour, though, said it was highly likely the rating agency would be dragged “in the direction” that S&P took, implying that a Baha Mar ‘work out’ will not be quick.

Should Moody’s follow suit, it would mean the two largest international credit rating agencies will have downgraded the Bahamas’ sovereign creditworthiness to one notch above so-called ‘junk’ status.

Mr Seymour told Tribune Business that many Bahamians remained unaware that further downgrades would likely increase the Bahamas’ borrowing costs on the international capital markets, increasing debt servicing costs and raising the deficit/national debt.

And, with the Government yet to commit to greater fiscal transparency or cut the national debt, Mr Seymour urged it to “move with haste” and implement so-called ‘fiscal rules’ that will “cap” its spending.

“We cannot really give too much ground going into 2016, given what has occurred in 2015,” Mr Seymour told Tribune Business.

“Without people noticing too much, there are some very concerning things that occurred with regard to the downgrades of our credit rating.”

He added: “Obviously, S&P did go ahead with it, while Moody’s deferred they’re decision. But, ultimately, I think Moody’s are going to go in that direction, seeing that the shock caused to the economy by the non-realisation of the Baha Mar project is going to drag into 2016.

“I don’t really see things improving to the extent that it changes things drastically.”

While acknowledging the Christie administration’s “hard work” in seeking a Baha Mar resolution, Mr Seymour, an accountant himself, said the decision to seek provisional liquidators for the project had effectively take the project down a path where its fate was out of the Government’s hands.

The responsibility now lies with the China Export-Import Bank, Baha Mar’s secured creditor, and its Deloitte & Touche receiver team, who have effectively taken over control from the joint provisional liquidators appointed by the Supreme Court.

“These things have to go through a process, and that process is generally time consuming,” Mr Seymour said of receiverships and liquidations.

He acknowledged that the Government could bring “deals” and parties to the negotiating table, but it was then down to the receivers and China Export-Import Bank to determine if these were acceptable.

Tribune Business sources familiar with Baha Mar developments have privately indicated that the project is in for a long ‘work out’ period, while some of Prime Minister Perry Christie’s recent comments bear out Mr Seymour’s remarks.

Besides conceding in somewhat coded language that Baha Mar’s fate will be determined by the bank and receivers (meaning the Government has little to no control or influence), Mr Christie’s comment yesterday that he sent “a strong letter” to China Export-Import Bank chiefs indicates he is losing patience and wants them to move faster.

And Mr Seymour yesterday suggested that much Baha Mar buyer interest was likely being stimulated by hopes they would obtain “a fire sale price” - something that does not meet the China Export-Import Bank’s objective of recovering its full $2.45 billion debt.

“Most persons who may have an interest, their interest is really being stimulated by getting a very good deal, almost a fire sale price, and that’s perhaps why it’s going to cause this to be extended out over lengthy period,” Mr Seymour told Tribune Business.

Suggesting that Baha Mar had “forestalled” the Bahamas’ planned economic growth, Mr Seymour described the situation as an “anti-climactic saga”.

He added: “The insidious ripple effects of this economic faux pas will no doubt continue to be a drag on the economy during 2016, as a number of over leveraged local contractors connected to Baha Mar face the real prospect of not being able to meet their obligations as they fall due, unless they are paid the amounts currently owed by the bankrupt entity.”

And, despite the Government’s projected $550 million in Value-Added Tax (VAT) revenues for the 2015-2016 fiscal year, Mr Seymour questioned whether it was “remaining faithful to its previously stated commitment of fiscal consolidation and expenditure rationalisation in the use of these new taxes”.

Noting that the Bahamas’ national debt had increased by $580 million to over $6 billion in the year to end-June 2015, Mr Seymour said this indicator appeared to be going in the opposite direction to what the Government had promised during the VAT implementation debate.

Pointing out that the VAT monies were supposed to be used to reduce the national debt and the Government’s fiscal deficit, the Chamber president said the Bahamas’ debt-to-GDP ratio stood currently at 75 per cent - well above limits regarded as “prudential”.

“In order to avoid further weakening in the economy, and to mitigate the possibility of overspending and provide greater transparency, the Government should move with haste to enact fiscal rules which set caps on spending over the intermediate to long term,” Mr Seymour told Tribune Business.

Describing the continued deficits and national debt increases as “very disconcerting”, Mr Seymour said the fiscal indicators had to be “arrested” and “not left to drift”, as this could ultimately result in a Bahamian dollar devaluation and loss of the US dollar currency peg.

Expressing particular concern about excessive government spending in the run-up to general elections, Mr Seymour emphasised that he was “not singling out the PLP” or any particular party.

But he argued that politicians were unlikely to show spending restraint “if left up to their own wiles”, hence the need for rules and caps.