The Tribune

The Central Bank’s governor yesterday said it was “within the Government’s reach” to lay out an economic growth strategy that convinces Moody’s not to further slash the Bahamas’ credit rating.

John Rolle told Tribune Business that the “key area” for the Christie administration will be to establish a “credible” GDP growth plan, given that concerns over the economic outlook were central to Moody’s decision to place the Bahamas ‘on review’.

Acknowledging that any downgrade to the Bahamas’ sovereign creditworthiness would be “worrisome”, Mr Rolle suggested that such a development - if it occurred - would be unlikely to have any economic impact in the short-term.

Instead, it would send a message to the Christie administration that it needs to redouble its efforts on both the economic growth and fiscal consolidation fronts, and assess its policies for both.

Mr Rolle added that rather than Moody’s potential actions in the short term, the Bahamas needed to raise its sights and ‘set the bar’ at achieving a ‘positive outlook’ on its medium-term prospects.

“I think it can be shown that the important structural changes have occurred in the fiscal area,” Mr Rolle told Tribune Business of the issues where Moody’s was keenly focused.

“I think it can be demonstrated that very credible structural reforms are in the pipeline speaking to the financial sector, in terms of a credit bureau and reforms elsewhere that the Government is driving, which could speak to the better management of risk in private sector credit. I think there can be very credible information provided to the agencies in that regard, managing the financial sector.”

Moody’s decision to place the Bahamas on a ‘two-month review’ for a possible downgrade appears to have largely been sparked, though, by the revisions to the GDP growth numbers.

The Department of Statistics appears to have stunned the rating agency with the revelation that the Bahamas has been in recession for two consecutive years, with the economy contracting by 0.5 per cent and 1.7 per cent, respectively, in 2014 and 2015.

This reversed previous expectations of 1-1.2 per cent economic growth, with the new data affirmed by Prime Minister Perry Christie in his 2016-2017 Budget communication.

Mr Rolle acknowledged that presenting Moody’s with a viable economic growth plan will be critical if the Bahamas is to stave off a downgrade, which could possibly be to ‘junk’ status and cost it its investment grade rating, in the short-term.

“The other key area where some credibility will have to be forthcoming is on a plan for growth, and how we can speak to the elements of growth coming forward,” he told Tribune Business.

“The credibility we have to show in terms of growth is in areas where the policies have to become enshrined in legislation. That will be very important.

“Some of the structural reforms related to growth may have a more gradual take-off, but it’s within the Government’s reach to establish some credibility.”

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.

“According to the latest national accounts report published by the Bahamas’ Department of Statistics in June 2016, the Bahamian economy grew on average by 1.2 per cent in 2010-2013, and then output contracted in both 2014 and 2015 by 1.1 per cent on average,” Moody’s said. “This contrasts with previous assessments published in 2014 and 2015, when GDP had been estimated to have grown on a consistent basis.”

After getting over its shock at two years of consecutive recession, Moody’s turned to the symptoms of the Bahamas’ economic malaise. “The worsened economic performance is characterised by persistently high levels of unemployment, stagnant credit to the private sector and declining investment, in part explained by the indefinite opening of the Baha Mar mega resort,” it said.

“Additionally, structural constraints related to the energy sector and labour market negatively impact costs for the tourism sector, which accounts both directly and indirectly for about 50 per cent of GDP. Given that these conditions are likely to persist in 2016 and 2017, Moody’s considers that it is unlikely that the Bahamas will return to its potential growth rate of about 1.5 per cent in the short-term.”

In response, Mr Rolle said: “Any rating downgrade, I think, would be worrisome on some level or the other. However, we do not see the credit rating as having a near-term impact on the economic environment.

“It’s [a downgrade] basically a signal to the Government on how concerted the effort needs to be to improve the economy, an improvement that has to be achieved over the medium term.”

With the economic outlook and associated reforms driving Moody’s stance, the Governor added: “For the rating agencies, what they would be expecting to see is the extent and likelihood of reforms in the near and medium term that could have an impact.”

Rather than Moody’s immediate decision on the credit rating, Mr Rolle suggested it was more important for the Bahamas to obtain a ‘positive’ outlook, as this would indicate it was moving in the right direction with the possibility of better days ahead.

“What is important is the medium range. Irrespective of where we settle today or three months from now, we want to see a medium term ‘positive’ outlook for the rating of the Bahamas,” he told Tribune Business.

“That’s where the ground-setting has to take place; making sure we get a positive outlook. Whether we have a change or not in the rating, a ‘stable’ outlook means we stay where we are. That’s not ideal.”