The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Standard & Poor’s (S&P) yesterday slashed its 2016 GDP growth forecast for the Bahamas to just 1.5 per cent, and warned that “material benefits” from the Baha Mar project are more than two years away.

The credit rating agency, in its full country analysis on the Bahamas, predicted there would be no “significant changes” to this nation’s economic outlook until 2017-2018 - a diagnosis that will weigh heavily on the Government’s fiscal performance.

For despite a relatively successful Value-Added Tax (VAT) implementation, S&P warned that the Christie administration - and its successor - will have “limited fiscal flexibility” without faster economic growth.

Its country analysis added that the Government had “limited capacity”, which inhibited its plans to address “some of the growth bottlenecks and structural problems plaguing the Bahamian economy”.

And S&P, backing the Free National Movement’s (FNM) analysis, agreed that the official unemployment rate’s decline to 12 per cent in May 2015 was driven by then-Baha Mar hiring and temporary employment generated by the Bahamas Junkanoo Carnival.

With Baha Mar shedding more than 2,000 jobs following its collapse into insolvency, it added that Bahamian unemployment levels would again increase before year-end.

“We expect growth to remain subdued over the next several years, following over a decade of negative real per capita GDP growth on average,” S&P said of the Bahamas.

“Structurally high unemployment and high household debt levels have persisted since the 2008 recession, and continue to drag down economic growth. Between 2012-2014, the country’s real GDP grew by just over 1 per cent on average, while real GDP per capita [contracted] by -0.3 per cent.

“We do not expect any significant changes to the economy over the next two years, particularly given our expectation that any material benefit that Baha Mar could have had on economic growth will be pushed beyond two years. We expect real GDP to expand by about 1.3 per cent in 2015, and by 1.5 per cent in 2016.”

S&P’s full-year 2015 growth estimate is in line with the ‘consensus’ on the Bahamas, with the International Monetary Fund (IMF) having cut its forecast from 2.3 per cent to 1.8 per cent, and then to the current 1.2 per cent.

Its fellow credit rating agency traveller, Moody’s, also dropped its 2015 growth forecast for the Bahamas - from 2.2 per cent to 1.5 per cent.

Yet S&P’s 2016 prediction marks a new ‘low’. It is at the ‘bottom’ of Moody’s range, which estimates a high of 2.5 per cent next year, and a low range of 1.5-2 per cent, depending on what happens with Baha Mar.

And the IMF is still forecasting 2.2 per cent growth for the Bahamas in 2016, having dropped its prediction from 2.8 per cent.

S&P’s more ‘bearish’ outlook on the Bahamas’ economic growth prospects comes as little surprise, though, given that it was more aggressive than Moody’s in deciding to downgrade this nation’s credit rating to one notch above ‘junk’ status.

It placed much more emphasis on the failed opening, and delays, associated with the entrenched Baha Mar dispute, which is still not fully resolved as the China Export-Import Bank seeks partners/investors to complete the $3.5 billion development and operate it.

S&P, meanwhile, warned that there had been no change to its position that “there is a greater than one-in-three likelihood” that it will downgrade the Bahamas’ sovereign credit rating again within the next six months to two years - a move that would place this nation in ‘junk’ territory.

“We could lower our ratings if the Baha Mar proceedings have knock-on effects on the island’s growth prospects, fiscal accounts, or external position beyond our current estimates,” S&P reiterated, again warning the Christie administration over governance and its handling of the dispute.

“We could also lower our ratings if the handling of the Baha Mar project, and its wider implications, leads us to reassess our view of the Bahamas’ institutional settings, which we currently view as a rating strength.

“On the other hand, the ratings could stabilise at the current levels if our concerns about this short-term shock do not materialise, or if the government takes measures to compensate for the economic damage it could inflict.”

The S&P analysis succinctly summed up many of the Bahamas’ problems, concluding that “structural problems continue to hold back growth with no prospects for material changes to the economy”.

“Although the Government has recognised the importance of reforms involving energy, the financial sector and competitiveness to tackle the country’s economic growth bottlenecks, the Government’s limited agenda capacity, particularly following the legal proceedings surrounding the country’s largest tourism development, will restrict its ability to meaningfully address these issues before elections,” S&P warned.

“Despite the Government’s plans to address some of the growth bottlenecks and structural problems plaguing the Bahamian economy, its limited agenda capacity restricts its ability to move forward.

“In turn, the absence of higher growth could present challenges to the Government’s fiscal reform measures. The Government has successfully introduced the VAT, which is an important step toward fiscal reform, but without growth, the Government will have limited fiscal flexibility.”

Emphasising that Baha Mar “won’t have any material impact... over the next one to two years”, S&P added: “Without any other significant growth prospects, we believe the country’s structurally high unemployment, high household debt and loan arrears, and lacklustre growth will persist.”