The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Prime Minister yesterday slammed Standard & Poor’s (S&P) decision to downgrade the Bahamas’ sovereign credit rating, arguing that the move “flies in the face” of its own analysis.

Addressing the House of Assembly, Perry Christie said the agency’s move to slash the rating to one notch above ‘junk’ status “does not match up to reality”, given the Bahamas’ improving growth and fiscal performance regardless of the Baha Mar dispute.

Echoing arguments that S&P was placing too much emphasis on Baha Mar’s short-term effects, Mr Christie said: “Indeed, they hold the rather pessimistic view that the project will not be completed quickly and that, once completed, its performance will be hindered for some time.”

Reaffirming the Government’s ‘commitment’ to resolving the Baha Mar impasse as rapidly as possible, the Prime Minister added: “Despite that, S&P takes a dim view of prospects for the project and suggests that, as a result, real GDP per capita in the Bahamas will barely grow at all over the next several years.

“Mr Speaker, such a downbeat assessment simply does not match up to reality. And, in fact, it also flies in the face of some of the evidence that S&P itself presents in its report.”

Mr Christie implied that S&P had failed to give enough weight to the Government’s fiscal reforms, and the fact it had already beaten Value-Added Tax (VAT), GFS deficit and primary surplus targets.

And, articulating the line employed by the Ministry of Finance on the night the S&P report came out, the Prime Minister suggested it had failed to recognise that Baha Mar was not factored into 2015’s GDP growth and fiscal forecasts.

“It is widely acknowledged that a prime requisite for a solid credit rating, strong investor confidence and buoyant economic growth is a sound and sustainable public finance framework,” Mr Christie said, hinting that S&P had acknowledged this was exactly what it was doing.

S&P said it had only kept the Bahamas at ‘investment grade’ because of the Government’s fiscal reform progress to-date, but warned that this needed to be accompanied by higher economic growth rates to “stabilise” the $6.2 billion national debt.

S&P conceded that the $150 million net new revenue raised in the first six months of VAT implementation, coupled with tax system improvements, would help reduce the rate of government debt growth to 3 per cent of GDP in 2015.

This represented a fall from 7 per cent growth in 2014, and S&P added: “The introduction of the VAT further demonstrates the sovereign’s track record of generally prudent policies through different governments, which has provided the country with institutional stability, and supports the Bahamas’ creditworthiness.”

However, Baha Mar was only half the story in S&P’s latest assessment of the Bahamas, as it warned that long-term structural weaknesses in the economy would also “depress growth”.

S&P added that its actions “reflect both long-term vulnerabilities and the short-term economic shock of the Baha Mar bankruptcy filing and subsequent legal disputes.

“The long-term vulnerabilities include a weakening external position and fragile domestic economy. The net external debt of the public and financial sectors has risen from 14 per cent of current account receipts (CAR) in 2008 to an estimated 48 per cent of CAR this year.”

S&P added: “In the domestic economy, non-performing loans are more than 15 per cent of total loans.

“Consumer credit and outstanding residential mortgages are more than 60 per cent of GDP. Unemployment - excluding seasonal effects - remains elevated. An inefficient energy sector pushes up energy costs and weighs on growth.”

Mr Christie responded yesterday that the PLP had outlined how it would deal with these problems in its Charter for Governance, but it is likely that S&P wants to see more action and less talk.

“The Government is also fully cognisant of the structural rigidities, or long-term economic vulnerabilities in the S&P terminology, that must be addressed in this country if we are to achieve the much–needed strengthening of economic growth that is required not only to absorb the healthy growth of our labour force but also significantly reduce our national rate of unemployment,” the Prime Minister acknowledged.

“The in-depth exercise that has been underway since last year on the elaboration of a National Development Plan for the Bahamas seeks to address the weaknesses that have been identified, and present an action plan for more buoyant and sustained growth of our economy and employment opportunities.

“It is most unfortunate that S&P failed to fully and properly account for the Government’s proactive and dynamic growth agenda in its analysis, to the same extent that it acknowledged the success of our fiscal plan. I dare say that, if it had, its conclusions would have justifiably been more positive.”

Mr Christie contrasted S&P’s assessment with that of both Moody’s and CIBC World Markets, both of which were more optimistic and credited the various fiscal reforms implemented by the Government (see other article on Page 1B).

And he concluded: “I am confident that we are on the cusp of a stronger, more prosperous and modern Bahamas for all Bahamians.”

Some, though, were distinctly unimpressed. One financial analyst, speaking on condition of anonymity, told Tribune Business: “I think you’ll find there are a lot of people that would disagree with that.

“We’re not out of the woods. People are still struggling to make ends meet and uncertainty looms large.”