The Tribune

A former Chamber of Commerce president yesterday said he was “100 per cent certain” the Bahamas’ sovereign credit rating will be downgraded by Moody’s, due to its failure to enact fundamental reforms.

Dionisio D’Aguilar, Superwash’s president, told Tribune Business that a “high school graduate” could have predicted this country was heading for downgrade territory, given that it persisted in “doing the same thing and expected different results”.

“I’m not surprised at all,” he said of Moody’s decision on Friday to place the Bahamas on a two-month downgrade review. “The Government keeps on doing the same old thing and expecting different results.

“You still have a tough economy that is not growing, you’re not putting the VAT money on the debt, which we all knew would happen.

“I don’t know what bubble they’re [the Government] living in, but they’re not growing the economy. Unemployment and debt are at record levels; of course we’re heading for a downgrade. A high school graduate could have told them that. I’m 100 per cent certain we’ll be downgraded.”

A further downgrade by Moody’s of two notches or more could cost the Bahamas its investment grade rating, pushing this nation into so-called ‘junk’ status.

The New York-based rating agency said its action was due to both the Bahamas’ unexpected economic contraction over the past two years, and the further deterioration in the Government’s fiscal position.

It appears to have been sparked by Prime Minister Perry Christie’s affirmation of official Department of Statistics data showing that the Bahamian economy contracted by 1.7 per cent in 2015, following a 0.5 per cent shrink in 2014.

This contrasted sharply with previous positive growth estimates by both the Government, itself and the International Monetary Fund (IMF), prompting Moody’s to determine that the Bahamas is “unlikely” to hit its 1.5 per cent GDP growth potential in the short-term.

Apart from its shock at the revised negative growth numbers, Moody’s ‘review’ also appears to have been stimulated by concerns that the Christie administration’s consolidation plan has yet to arrest the growth in the $6.6 billion national debt and related ratios.

It pointed out that “debt accumulation” has continued to increase, with the Government’s direct debt-to-GDP ratio growing by five percentage points in two years to hit 65.2 per cent at the June 30 end to the 2015-2016 fiscal year.

And Moody’s also appears concerned that the Christie administration consistently fails to hit its Budget projections, and the adequacy and effectiveness of its policy responses to the Bahamas’ problems.

Mr D’Aguilar yesterday agreed with the latter concern, telling Tribune Business: “We are doing nothing to change the way we are running our country, and get the same results.

“The economy has not grown for years, and the debt keeps going up. We don’t have a plan on how we’re going to get our people back to work, we don’t have a plan to grow the economy, and are not making it easier to do business by piling on all these regulations. We’ve not dealt with the banking industry, which is still not lending any money. What do we expect?”

Mr D’Aguilar suggested that the Government adopt a US policy by appointing a Council of Economic Advisors, featuring private sector leaders and academics, who would provide it with ‘real world’ ideas for growing the Bahamian economy beyond those supplied by the public service.

Prime Minister Perry Christie has previously suggested he would create such a body, but has never done so, and Mr D’Aguilar yesterday suggested it might help pop “the bubble” he said too many ministers were living in.

“They don’t have the intellectual bandwidth to solve these problems,” he argued. “This is why they need people on the outside to help them. They’re doing it the same old way, and power is going off and the economy is not growing.”

Much will now depend on what happens when both Moody’s and Standard & Poor’s (S&P) visit the Bahamas this month to conduct their annual economic and fiscal assessments, and meet with key Government and private sector officials.

The key will be for the Christie administration to convince both rating agencies that its economic growth and fiscal policies are up to the task, and will deliver the results promised to both them and the Bahamian people.

The loss of ‘investment grade’ status would be highly damaging for the Bahamas and its economy, as it signals to the international capital markets that this nation’s creditworthiness is slipping. As a result, the Government will have to pay more for current and future debt issues, raising its debt servicing (interest) costs, and sucking money away from essential public and security services.

A downgrade to ‘junk’ could also deter investors assessing the Bahamas as a place to invest, as it raises questions about the Government’s economic management.

Top of Moody’s ‘priority list’ is to determine whether the Bahamas’ medium-term economic growth prospects will improve. The Government is projecting a modest GDP expansion of 0.7 per cent in the upcoming 2016-2017 fiscal year, followed by a slightly more robust 1.6 per cent in 2017-2018.

The second area it will focus on is how likely the Christie administration is to “stabilise its deteriorating debt metrics and restore fiscal strength”, and it will also “assess the Government’s policy credibility and effectiveness in response to the ongoing macroeconomic and fiscal challenges”.