The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Moody’s yesterday backed the International Monetary Fund’s (IMF) prediction that the Bahamas’ 2015-2016 fiscal deficit is set to overshoot the Government’s estimate by around $100 million.

The international credit rating agency, in a follow-up note to world markets following Monday’s downgrade of the Bahamas, forecast that the deficit for the recently-closed fiscal year would be equivalent to 2.9 per cent of GDP.

This is some 1.2 percentage points higher than the Christie administration’s revised estimate of 1.7 per cent of GDP, or $150 million. And given that 1 per cent of Bahamian GDP is roughly equivalent to $80 million, the Moody’s forecast suggests the 2015-2016 GFS deficit will come in around $240-$250 million.

“We estimate that the deficit reached 2.9 per cent of GDP by the end of fiscal 2015-2016, relative to the estimate of 1.7 per cent presented in the budget,” Moody’s said yesterday.

“Given the gradual economic recovery, we forecast that the government’s debt-to-GDP ratio will continue rising through 2016-2017 and stabilise thereafter as the fiscal deficit continues to decline.”

Moody’s forecast mirrors that of the IMF, which in its recent Article IV report warned the Government that its fiscal consolidation projections are “too optimistic”, and that the deficit for the just-closed 2015-2016 year will be around $100 million higher than forecast.

“With weaker than expected growth weighing on revenue collection, the authorities’ plan that seeks to reduce the 2015-2016 fiscal deficit to 1.5 per cent of GDP, and to achieve a near balanced budget by 2017-2018, appears too optimistic,” the IMF said then.

“Staff projections suggest a still significant, but more realistic and growth-friendly pace of consolidation, with the fiscal deficit projected to narrow to 3 per cent in 2015-2016.

“The fiscal deficit is expected to decline further in 2016-2017, albeit at a slower pace, with debt stabilising at around the same time.”

Also agreeing with this analysis, Moody’s added: “We expect that the current fiscal consolidation process will continue to take place, albeit at a slower pace than that envisaged in the 2016-2017 Budget.

“Government interest payments relative to revenues have also increased to an estimated 13.5 per cent in 2015-2016 from less than 10 per cent in 2007-2008, suggesting a somewhat limited fiscal space compared with that of most peers.

“Given the gradual economic recovery, we forecast that the government’s debt-to-GDP ratio will continue rising through 2016-2017 and stabilise thereafter as the fiscal deficit continues to decline.”

While the Bahamas’ fiscal risks were offset by its “captive” domestic investor base, and relatively favourable debt maturity profile, Moody’s also noted the economy’s low average 0.2 per cent growth rate over the past four years.

It forecast that the Bahamas’ GDP growth will be just 0.3 per cent this year, and 1 per cent in 2017, although it appeared not to be aware yet of the Government’s agreement with China for the construction completion of the $3.5 billion Baha Mar resort.

“Over the medium term, structural rigidities in the energy sector and labour market, as well as impediments to the ease of doing business, may constrain growth to rates closer to 1.5 per cent,” Moody’s added.

“While authorities have implemented some measures to address these issues, and have put forward a pro-growth reform agenda via the National Development Plan, progress has been slow so far.”

The rating agency added that it expected “the Bahamas’ economic performance over the next five years will likely remain subdued, and constrained by structural rigidities.

“While we forecast that the Bahamian economy will recover in 2016-2020, we expect real GDP growth to average 1.3 per cent during this period, the fourth weakest economic performance out of the current 22 ‘Baa- rated sovereigns,” it said.