The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Moody’s believes the Bahamas has been “stuck in a low growth trap” for this entire century, its average per annum GDP expansion of 1.5 per cent under-performing the Caribbean.

The international credit rating agency, in a newly-released report on Latin American and Caribbean sovereigns, ranked the Bahamas at the bottom of its ‘low growth’ category when compared to the rest of the region.

It was placed among six Caribbean nations who have suffered low economic growth rates over the past 15 years, although the Bahamas has performed better than the Cayman Islands, Bermuda, Barbados and Jamaica.

“ A distinct characteristic of this group is the prevalence of Caribbean economies (six out of 11) that are stuck in a low-growth trap,” Moody’s said of its ‘low growth’ group. 

“The median HTG (historical growth trend) for Latin America stood at 3.8 per cent, while the one for the Caribbean was almost half that at only 2 per cent (the Dominican Republic was the exception).”

The message from Moody’s April 5 report is especially blunt for the Bahamas, as it shows this nation has failed to match an already below-par regional growth average since the millennium.

It feeds into the ongoing narrative about the Bahamas’ economic competitiveness versus regional and global rivals, and the fact this nation’s economy/GDP is not growing fast enough to generate the necessary jobs.

Stephen Wrinkle, a former Bahamian Contractors Association (BCA) president, told Tribune Business that successive governments had failed to foster a climate conducive to the growth of domestic, Bahamian-owned businesses.

He added that this had left the economy, and Bahamian workforce, largely at the mercy of ‘hit or miss’ major foreign direct investment (FDI) projects, many of which either never happened or failed to produce the expected economic benefits.

“The people leading this country are living in a reality TV sitcom,” Mr Wrinkle told Tribune Business. “They certainly are not addressing these issues.

“It’s certainly not all the politicians’ fault, but they have not gone to any lengths to create an environment for domestic economic growth. That is the responsibility of the Government; to create an environment where business can thrive and grow.”

The International Monetary Fund (IMF) has repeatedly warned that unless the Bahamas achieves an average annual GDP growth rate of between 5-7 per cent in the years up to 2018, it will be unable to slash its existing 14.7 per cent unemployment rate in half and create enough jobs to absorb all school leavers.

Achieving such targets appears an increasingly remote prospect, even to the Government’s own MPs. Ryan Pinder, the ex-minister of financial services, used the mid-year Budget debate to warn his Cabinet colleagues that they need to focus on economic growth as the priority item among the four medium-term fiscal consolidation objectives.

Moody’s report has emerged as the Government’s National Development Plan Secretariat prepares to release its ‘State of the Nation’ report to the public tonight.

This first, initial stage of the much-trumpeted Plan will lay out where the Bahamas is across a range of economic and social indicators, and attempt to explain why the country is in the state it is.

The National Development Plan’s end-goal is to set out a 25-year vision and targets for the Bahamas, and provide a properly planned foundation for the country’s growth and progress.

“The Bahamas has been doing a lot of wishing,” Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s chairman, told Tribune Business. “It’s time now to have a plan to achieve our goals.”

Moody’s report predicted that future economic growth in the Caribbean will generally be closely in line with historical trends, as improving tourism and a reduction in global oil prices benefit visitor-dependent economies such as the Bahamas.

“For Caribbean sovereigns, economic recovery in 2016-2017 after years of anemic growth should lead to more stable ratings,” the rating agency added.

For the Christie administration, the positive news came on the fiscal front. Moody’s report showed that the Bahamas has achieved the greatest deficit reduction of any Latin American or Caribbean country over the past three years.

The marked transition, from a near-6 per cent of GDP deficit in 2013-2014 to around 2 per cent a year later (thanks to Value-Added Tax), appears to have left the rest of the region in the shade.

“Stronger growth in the Caribbean will support fiscal accounts, with government deficits at or below previous levels,” Moody’s added.

“Five Caribbean sovereigns will report very high, albeit stabilising, debt burdens. Even though five Caribbean sovereigns will report very high debt burdens of above 60 per cent of GDP, better fiscal performances and stronger growth will contribute to stabilising debt ratios in several countries.”

The Bahamas is among the five with direct government debt-to-GDP ratios higher than 60 per cent. The positive here, though, is that Moody’s rated this nation as being among the two (Barbados is the other) who have stabilised their debt growth in relation to the economy’s size.

Several observers will likely counter this by arguing that the national debt is still increasing in gross terms, albeit at a lower rate, and is now hovering at around $6.7 billion when the $700 million worth of various government guarantees are taken into account.

Still, the Bahamas’ debt servicing costs were also shown by Moody’s to have stabilised, with interest payments on the national debt remaining consistent at around 14 per cent of GDP during the three years to 2016.

Moody’s also credited the Bahamas with slashing its current account deficit in half in percentage terms, from just over 20 per cent in 2014 to around the 10 per cent of GDP forecast for 2016.

That has been aided by the fall-off in construction imports associated with Baha Mar, but Moody’s noted that foreign direct investment (FDI) inflows will still be insufficient to cover this reduced amount.

The rating agency is projecting that FDI capital will only account for three-quarters of the Bahamas’ forecast 2016 current account deficit, meaning that this nation may have to engage in foreign currency borrowing to close the gap.

“In the Caribbean, FDI inflows will also provide adequate coverage of current account deficits,” Moody’s said. “The only countries in which the basic balance will be very negative are Bahamas and St Vincent. 

“The Dominican Republic and Jamaica will see the largest improvement in their basic balance. On the other hand, while still having a positive balance, Trinidad and Tobago’s external accounts are set to experience a large deterioration as the current account goes into deficit driven by lower oil and gas prices.”