The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government was yesterday told to rein in its spending during the remaining months of the 2015-2016 fiscal year, with an international rating agency expressing concern about the Bahamas’ “persistent rapid debt accumulation”.

Moody’s, in its half-yearly assessment of the Bahamas, also warned that this nation’s “underperforming” economic growth was producing a higher-than-expected debt burden that will “eventually weigh” on its sovereign creditworthiness.

It pointed out that despite slashing the fiscal deficit in half for the five months to end-November 2015, the amount of ‘red ink’ incurred during that period was almost equivalent to the Christie administration’s full-year projection.

“The fiscal deficit in 2015-2016 so far has been halved relative to the same period a year ago, but it is in line with the full-year Budget,” Moody’s said.

“Therefore, in order to maintain the deficit on target with the Budget, expenditure restraint may be required.”

Tribune Business revealed earlier this year how the deficit for the five months to end-November, based on Central Bank of the Bahamas figures, stood at $134.1 million, a sum equivalent to 95.1 per cent of the projected $141 million GFS deficit for the 2015-2016 full year.

Moody’s yesterday projected the Government’s 2015-2016 full year deficit will total 2 per cent of GDP, or around $184 million.

That is slightly higher than the Christie administration’s own projections of a 1.5 per cent, or $141 million, deficit when the Budget was presented last May.

While giving the Government credit for reducing the fiscal deficit from a 5.8 per cent peak in 2013-2014 to 2.3 per cent the following year, Moody’s drew attention to several troubling trends, particularly the continued rapid increase in the national debt despite Value-Added Tax’s (VAT) implementation.

“While lower deficits should contribute to the stabilisation of the upward debt trend seen in the Bahamas, we note that rapid debt accumulation persisted last year,” the rating agency said.

“According to Central Bank of the Bahamas data, the central government’s debt stock rose 5.8 per cent year-over-year to $5.9 billion by December 2015. Although this is below the 12.8 per cent average growth in the debt stock in 2013-2014, it continues to exceed nominal GDP growth (estimated at 2.8 per cent in 2015).

“For this reason, we estimate that the Government’s debt-to-GDP ratio reached 67.8 per cent in 2015, far above the ‘Baa’ median of 42 per cent.”

The ‘Baa’ notation is a reference to other countries that enjoy a similar rating to the Bahamas, and Moody’s said this nation enjoys “the lowest fiscal strength score” among such nations.

It also highlighted how the Government has yet to achieve at least one of its four key ‘pillars’ vital to an economic turnaround, namely economic growth.

Moody’s said the Bahamas had achieved average economic growth of just 1 per cent over the past four years, and added: “The Bahamas’ growth performance since our last rating action in September 2014 has been weaker than our baseline at the time.

“This has not yet had a strong negative effect on the Government’s fiscal consolidation efforts because revenues have been boosted by the new VAT.

“Nevertheless, weak growth has pushed the peak in the debt-to-GDP ratio back by a year to 2015, and to a higher level than the one we had initially envisaged. In our view, this higher debt burden will begin to weigh on the sovereign’s creditworthiness as long as growth underperforms.”

The rating agency’s report, released four days before the Government delivers its mid-year Budget in the House of Assembly, is a reminder that much more remains to be done to bring the $6.5 billion national debt and related ratios to a sustainable level.

It was effectively a ‘glass half-full’ assessment of the Bahamian economy, acknowledging the progress made to-date in reducing the fiscal deficit, arresting the debt-to-GDP growth ratio and achieving a primary surplus, while praising energy sector reforms and other initiatives embarked upon by the Government.

The good news, from the embattled Christie administration’s viewpoint, is that Moody’s made no mention of any downward revision to its current ‘Baa2’ rating on the Bahamas, and also maintained its ‘stable’ outlook.

Moody’s also paid minimal attention to the ongoing Baha Mar impasse, another plus from the Government’s viewpoint, instead focusing on the fiscal consolidation efforts.

This is consistent with its assessment last summer, when it took the attitude that Baha Mar was a potential future - rather than immediate - benefit to the Bahamian economy and public finances, and its impact would be a bonus to fiscal consolidation efforts that are already beginning to reap rewards.

“We had originally expected that growth would be boosted closer to 2 per cent, supported by higher employment and the opening of the Baha Mar mega resort,” Moody’s said yesterday.

“However, following a legal dispute between the resort’s developer and the contractor, its opening has been delayed indefinitely.”

As far as Moody’s is concerned, that was it for Baha Mar. Its reaffirmed assessment means that the Government can focus its efforts on fellow rating agency, Standard & Poor’s (S&P), when it comes to staving off a further downgrade of the Bahamas.

Still, Moody’s said: “We assess the Bahamas’ fiscal strength as ‘low ’, owing to its relatively high debt burden – partially offset by moderate debt affordability, a captive domestic investor base, and a favourable maturity profile.

“The debt-to-GDP ratio exceeds the Baa median (42 per cent), having more than doubled over the last decade to 67.8 per cent by end-2015.

“Government interest payments relative to revenues have also increased to an estimated 14.5 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.”

Moody’s agreed, though, that VAT had helped to stabilise government revenues, which rose to more than 20 per cent of GDP in 2014-2015, compared to 17.4 per cent the previous year.

“This also helped reduce the Government’s debt-to- revenue ratio from 351 per cent in 2014 to 319 per cent in 2015,” Moody’s added.