The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas has “a very short window” in which to address international credit rating agency concerns, a well-known accountant warning that loss of its ‘investment grade’ status would be “catastrophic”.

Philip Galanis, HLB Galanis & Co’s managing partner, told Tribune Business that Moody’s decision not to follow Standard & Poor’s (S&P) in downgrading the Bahamas would provide short-term ‘breathing space’ for the Government in accessing foreign currency debt financing.

While praising Moody’s analysis as “much fairer” than S&P’s, as it recognised that Baha Mar’s opening had not been factored into this year’s GDP growth and fiscal projections, Mr Galanis warned the Christie administration that it would be “on a very slippery slope” if the dispute over the $3.5 billion project was not resolved quickly.

Failure to restart construction and open the development in the medium-term, he warned, could result in a “significant fall-off” in revenues that the Government would have to compensate for via spending and other Budget adjustments.

And Mr Galanis expressed hope that the Baha Mar situation would ensure future governments learned not to pin all their economic revival hopes on a single investment project, no matter how big.

“They felt it would not be fair to move the goalposts,” was the former PLP MP and Senator’s assessment of Moody’s decision to maintain the Bahamas’ sovereign credit rating at ‘Baa2’ with a ‘stable’ outlook.

“I think it was a much fairer analysis than S&P’s. S&P placed too much emphasis on the Baha Mar fiasco and the delays associated with it.... It’s a fairer comparison and a fairer assessment of what’s happening.”

Moody’s had earlier this year adjusted its 2015 GDP growth estimate for the Bahamas from 2.2 per cent to 1.7 per cent on account of Baha Mar’s delayed opening and, having made the change, opted to take a longer-term view of the impact this would have on the Bahamas’ economic and fiscal performance.

“It seems they decided not to do so [downgrade] because they felt the full effect of Baha Mar was not included in the projections for the current year,” Mr Galanis said.

Tribune Business reported yesterday the Moody’s belief that Baha Mar will “only start weighing” on the Bahamas’ creditworthiness if it remain unopened by the 2016 second half, something that would prompt the rating agency to slash next year’s GDP growth forecast by up to a full percentage point.

It gave the Bahamas, and the Christie administration, a break by deciding to adopt a ‘wait and see’ approach to how the Baha Mar dispute plays out and its impact on the economy.

Moody’s was also influenced by an improving economic growth rate, plus the Government beating several fiscal targets it had set for its itself - Value-Added Tax (VAT) revenues; hitting a primary Budget surplus a year ahead of schedule; and cutting the fiscal deficit by an amount equivalent to more than three percentage points of GDP.

“I think the other interesting thing that Moody’s indicated is that there seems to be a levelling off of the increase in [the national] debt, which is positive,” Mr Galanis told Tribune Business.

“I have been very concerned for a number of years about the trajectory at which our debt was headed.”

Moody’s estimated yesterday that the Bahamas’ debt-to-GDP ratio had peaked at 65.8 per cent around at end-December 2014, and was not set to either stabilise or slowly reduce.

It added, though, that a debt-to-GDP ratio reduction depended heavily on higher economic growth - something that Mr Galanis acknowledged was an issue.

“The difficulty we face is that there are no large projects coming on line any time soon to augment revenues apart from Baha Mar,” Mr Galanis said.

“It’s really unfortunate that we’ve put all our eggs in one basket by relying on one investment project.”

He added that while Moody’s actions would ensure the Government’s access to international capital markets would not be impeded in the short-term, this nation had “a very short time” in which to resolve the Baha Mar dispute and thus maintain its economic and fiscal progress.

“I’m pleased Moody’s has not joined S&P, as that would have had significant implications for our ability to borrow and cost of borrowing,” he told Tribune Business.

“I’m happy they’ve made that decision, but the time is very short, the window is very short, to hopefully either contain the situation by restoring Baha Mar or ameliorating the situation by increasing revenue in other areas.

“If that doesn’t happen, it’s likely Moody’s will result in a downgrade, and S&P will further downgrade, which could really be catastrophic for the country.”

Another S&P downgrade would cause the Bahamas to lose its ‘investment grade’ credit rating, dropping this nation to the status of a ‘junk’ borrower.

That would affect the Government’s ability to obtain foreign currency debt financing on the international capital markets, and increase the cost (interest payments) associated with doing so.

This, in turn, will suck ever more money away from the Government’s ability to finance essential services such as the police, health and education, and social security.