The Tribune

By SANCHESKA BROWN

Tribune Staff Reporter

sbrown@tribunemedia.net

MICHAEL Halkitis, State Minister for Finance, said yesterday the government will meet with representatives from ratings agencies Standard & Poor’s and Moody’s starting next week in order to “convince” the firms not to downgrade the country’s credit rating.

In an interview with The Tribune, Mr Halkitis said while Moody’s seems to be “leaning in one direction,” the government will “plead its case” in hopes that the Wall Street ratings agency will see the government’s positive future prospects for the economy.

His comments came days after Moody’s announced it was placing the country “on review” for a potential downgrade, due to both its unexpected economic contraction and further deterioration in the government’s fiscal position.

He spoke to The Tribune hours before the government released a statement on the matter, which said the government is “confident” that the impending review will show that medium-term economic prospects for the country are good, pointing to the “imminent” construction restart and opening of Baha Mar as a good growth prospect.

Moody’s pointed out last Friday that “debt accumulation” has continued to increase, with the government consistently failing to hit its budget projections, and the adequacy and effectiveness of its policy responses to the Bahamas’ problems.

Moody’s warned that any potential downgrade could be “by one notch or more.” The country currently has a ‘Baa2’ rating, two notches away from being cut to so-called “junk” status – a position where it will lose its existing investment grade status.

Moody’s announcement is more in line with S&P, which presently has the Bahamas one notch above “junk status.”

Despite the gloomy prospects, Mr Halkitis said he believes the government can convince the agencies not to downgrade the credit rating.

“S&P is coming next week and Moody’s the following week,” he told The Tribune yesterday. “They will be able to meet with the private sector and the government ministers and we will impress on them why we don’t think we should be downgraded.

“Moody’s is leaning in one direction and obviously it is not what we wanted but we will do our best. If it does happen, then we will deal with it and we will cross that bridge when we get there. They are concerned about the data from the Department of Statistics, but looking forward we want to show them the positive outlook for the country. We will let the facts speak for themselves.”

Mr Halkitis said the issues the Bahamas is experiencing at the moment are “not that different” from what is happening around the world. He said despite the potential negative outcome, he does not believe this will give the government a “black eye.”

“We will plead our case and they will do their analysis and come to their conclusion but we are going to show them some of the government’s positive investment promotion exercises,” Mr Halkitis said.

“We have the mortgage relief programme that will assist many people, we are also improving the quality of loans and doing positive things for the economy. They did their initial review and we will speak to them and lay out the plans we have. All over the world, countries are experiencing low growth rates. We have had some bright spots; the economy has not grown how we wanted it to. Baha Mar was supposed to add to the country’s growth and the sooner they open, the better.

“These agencies are analytical, they go by numbers, this is what they act on. We have had improvement but they are looking at the numbers but like I said we will try to convince them and plead our case,” he said.

The country has until August to convince Moody’s otherwise, and is also in the middle of the “six-24 month” period set by S&P to determine whether it will follow through on the “greater than one-in-three chance” of a Bahamas downgrade.

In its statement released last evening, the government said the country is not exempt from the lower commodity prices and external investment uncertainty through the loss of correspondent bank services that is being felt in the Caribbean region.

“Although the Bahamas has not been completely exempt from any of these phenomena, the government is confident that this review will reveal that medium-term economic prospects for the Bahamas are good given projected foreign direct investment, the government’s fiscal consolidation efforts and the implementation of innovative policy initiatives with respect to certain structural constraints the country has faced in the energy sector and labour market.

“The government’s position is that ongoing construction at various projects around the country is generating significant economic activity.”

The statement added that there “is no question” that economic activity in much of the country is higher than three years ago.

“Growth prospects for the Bahamian economy are also very good with the imminent restart of construction at Baha Mar and its subsequent opening. In addition, challenges within the energy sector are being addressed by the new private sector management team at Bahamas Power and Light and the benefits of this will be realised in the short-term.”

The government also said it is addressing rising debt through a fiscal consolidation plan, adding that the successful roll-out of value added tax in 2015 shows the Christie administration’s commitment to this.

“The rate of growth of government debt has declined steadily over the past three years and with recent revenue enhancement measures and expenditure control efforts, it is expected that the increase in debt will halt and the level of government debt will begin to decline in absolute terms by 2018/2019,” the statement said.