By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The multi-million dollar damages inflicted by Hurricane Matthew have again exposed the Bahamas to the “extremely frightening” prospect of a ‘junk’ credit rating downgrade, a well-known businessman feared yesterday.
Dionisio D’Aguilar, Superwash’s president, told Tribune Business that the economic damage inflicted by the Category Three-Four storm, together with the unanticipated repair costs incurred by the Government, would likely catch the attention of Moody’s and Standard & Poor’s (S&P).
“It’s extremely frightening in this respect,” he said. “We just, in August, received a downgrade as we were spending money at a far greater rate than the agencies liked, and that was before the storm. They were predicting that the deficit would be $100 million more than projected.
“With this hurricane, and an election coming, it’s going to be hell to stop the Government spending all this money. Everyone’s going to be crying for money to fix this, fix that.
“They’re going to be spending a lot of money carrying out repairs, using the same inefficient system we have now, to distribute funds with no Freedom of Information Act and no way to check how they’re going to spend this money.”
Mr D’Aguilar, long rumoured to be a potential FNM candidate in the upcoming general election, added: “Coupled with a likely reduction in GDP, revenues are going to increase, the demand for public expenditure will rise, and the deficit will widen.
“It almost guarantees us a further downgrade, and we all know what that will lead to. The rating agencies are merciless and ruthless, and they don’t care why you’re doing what you’re doing.
“They will say you should have got your house in order before the storm. If we’d done that, we might have had a little headroom, but now we have no headroom.”
Mr D’Aguilar’s comments came as some estimated that Matthew had delivered a $1 billion blow to the Bahamas and its economy, one insurance executive, speaking on condition of anonymity, placing total insured losses at $800-$900 million.
While few have ventured to place a figure on the damage done across New Providence, Grand Bahama, Andros and the Berry Islands, Patrick Ward, Bahamas First’s president and chief executive, said: “There’s a gap between the economic loss and the insured loss, and the economic losses are far more significant than the insured losses.”
Both Moody’s and S&P currently have the Bahamas rated one notch above so-called ‘junk’ status, meaning a further downgrade would cost this nation its cherished ‘investment grade’ rating.
The concern, as articulated by Mr D’Aguilar, is that the sheer scale of the damage inflicted by Hurricane Matthew will force the Government to spend hundreds of millions of dollars that it never budgeted for.
This, in turn, threatens to throw the Christie administration’s forecast $100 million GFS fiscal deficit for the current 2016-2017 fiscal year ‘out of whack’, together with its long-term plans to eliminate the annual deficit and reduce the $6.778 billion national debt.
The national debt, at end-June 2016, was estimated at almost 80 per cent, nearly 10 percentage points higher than the 70 per cent ‘danger threshold’ benchmark set by the International Monetary Fund (IMF).
The gloomier fiscal prognosis, coupled with Matthew’s impact on the private sector and wider Bahamian economy, will potentially draw fresh scrutiny of the Bahamas from both Moody’s and S&P.
Another downgrade would negatively impact both the Bahamas’ access to international capital markets and raise the cost of future borrowings, thereby sucking money away from essential public services to finance ever-growing interest (debt servicing) payments.
It would also send a negative message to international investors, as it would suggest that the Bahamas is not properly managing its fiscal affairs.
Mr D’Aguilar yesterday acknowledged that the Government’s desire to alleviate the Bahamian people’s suffering was understandable, with or without a general election impending.
Yet he expressed concern that the system could be exploited by unscrupulous persons to siphon off funds and supplies they did not need, taking resources away from the Bahamians who needed them most.
“Many people use this type of disaster to exploit the system, and I’m sure this is going to happen,” Mr D’Aguilar told Tribune Business.
“When you hear they are going to spend the money, and that the paperwork is going to catch up, you understand why they’re doing it, but the Bahamas is not in a good place right now.”
Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, also acknowledged the blow Matthew had delivered to the Government’s finances, saying the Bahamas was “moving from fiscal headroom to fiscal survival”.
Referring to the Government’s proposal to issue a bond specifically to finance Matthew-related repairs and recovery, Mr Bowe said: “We have to become creative as to how we finance that bond, and as to repayments over the long-term.
“This has to be a tempered exercise to ensure that money is spent in a sustainable manner, and allows the greatest amount of people to benefit from it.”
Mr Bowe encouraged the Government to limit any post-Matthew borrowing by moving Budget spending allocations where possible, reducing expenditure in certain areas, and “looking at where we can cut the fat”.
He called on the Christie administration to prioritise the most urgent infrastructure repairs, and expressed hope that most of the New Providence storm damage would be covered by insurance.
“There’s no denying that any time you have a major natural disaster, it is going to have a tremendous economic impact, and you don’t always appreciate it in the immediate aftermath,” Mr Bowe told Tribune Business.
“I think it is going to be a tremendous blow.”
Mr D’Aguilar, too, agreed that Matthew’s economic impact would be “significant”.
He explained: “There’s going to be a significant dip in GDP and commercial activity because a lot of businesses don’t have generators, or people can’t get product or are diverting funds from product to restoration.
“I’m not sure what insurance people have, and tourism is going to be significantly affected. Whether we like it or not, this storm is all over the news and the web, and Nassau received a direct hit. So people are going to re-jig their vacation plans. There’s going to be a significant knock-on effect.”
Comments
lazybor 8 years, 2 months ago
thats not unexpected
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sheeprunner12 8 years, 2 months ago
.........."looking at where we can cut the fat" ............... I wonder if an accountant can say that with a straight face ................ Sumner & Bowe are like "Turner & Hooch" ........... they know what the PLP politicians are doing to our country in this term and have never called them out ...... are they getting their "fat" as well?????????
OMG 8 years, 2 months ago
Only fools could run a country with a spend spend spend attitude and not put somthing away for natural disasters. Wait for the lies,excuses and fairy tails that we will now hear.
John 8 years, 2 months ago
Actually the reverse of what D'Agular is saying is also likely. The horrific hurricane damage can be the stimulus needed to get the economy moving. Estimates are that insurance companies will have to come up with $400 million in claims money. Uninsured home India business owners may have to come up with another $500-$600 million and government may have to spend another $200 million on hurricane relief. Then there are the donations coming into the country. This is $1 billion that would not have been spent. Not only will jobs be created and unemployment reduced, but this billion dollar injection will drive economic activity. As economic activity increases there will be some economic growth. Then assume that whilst the repair and recovery work is going on work is also going on at Bah Mar and it does open next year. This can bring the unemployment numbers down by more than 50%. But what government must now do is give initiatives to get other projects going and keep the unemployment numbers decreasing. It must create some projects that will not only help unemployment, but generate revenue. This will be s matter of the country pulling itself up by its own bootstraps. Leaning more towards self sufficiency. The multiplier effect of $1 billion being injected in the economy over a short term would definitely created a much needed economic jolt.
banker 8 years, 2 months ago
What John outlines may be somewhat true in a diversified economy. However the economy of the Bahamas is quite monolithic. The billion dollars required to fix Matthew's damages will benefit the Florida building supply companies, the electrical equipment manufacturers, the petro-chemical roofing/paint manufacturers etc. None of these are Bahamian companies, unless Potcake Miller still has his paint company going.
The bottom line is that you are taking a billion out of the economy that could have gone to other things like debt repayment, etc. There is no economic offset or multiplier unless the economic stimulus creates permanent jobs in all of the areas touched by the rebuilding.
There are primary, secondary & tertiary industry offsets. The primary industries are those who cut the wood, drill for oil, and supply the resources. The secondary industries are those who add value to the resources by manufacturing. The tertiary industries either use the output of the primary & secondary industries. In the case of Matthew, it would be the carpenters & roofers etc. Their portion of the economic pie is small, compared to the cut taken by the primary & secondary economic segments.
So sadly, the economic effect of Matthew is unfortunately a drain on the Bahamian economy rather than a stimulus.
In a diversified economy, the economic stimulus is muted because the money that goes into repairs is taken away from being lent out to create new economic streams in business. However if the recovery money is used to re-build more efficient infrastructure, then there is a positive economic offset. It is a dicey gamble at best to count on catastrophe damage as an economic stimulus.
Socrates 8 years, 2 months ago
some merit to John's comment, but i think most who suffered losses were likely uninsured, since too many weren't even paying their mortgages so judge home insurance hurricane coverage, as costly as it is. further, government borrowing (since we always had governments that did not see the wisdom of having a disaster fund) will rise in a big way. while that money will find its way to merchants, the question still remains how will that borrowing be repaid. perhaps VAT may have to be 15% after all or we can have a hurricane tax with a sunset provision (maybe 3 years) to cover this one situation.
John 8 years, 2 months ago
Obviously you did not read well. I did say that while the hurricane recovery activity is going on the government must seek to create new projects or new activities to keep the economy going. Secondly, whenever money exchanges hands some wealth is created, call it primary, secondary or whatever. When persons involved in the hurricane recovery get money in their hands and they spend it in the food store or pay their light bill or buy gas for their car this generates more money. Notice I also indicated that if work continues on Bah Mar and that project gets up and running whiles recovery work is going on or shortly thereafter after. Our economy has always been fragile and difficult to grow simply because too much of a dollar spent locally ends up leaving the economy and going abroad. That is why government must promote and stimulate inter-island commerce, where local products are traded between the islands and given preference to imports. Government can also cut the enormous oil import bill by leaning more towards solar energy and stop being sucked in by the big oil companies and their local representatives to stay dependent on fossil fuels. And of course corruption and government wastage must be reduced and controlled. Too much of the tax dollar is not getting value for money. Then include the giving away of our natural resources into the mix, be it prime beaches and land to hotel properties or arragonite to foreign cronies. Rather than being saddled with a multi-billion national debt and unbearable tax burden and the threats of credit downgrades, every single Bahamian should be a millionaire. You do the math!
banker 8 years, 2 months ago
Sigh. Obviously you did not read economics well. Quoting from The National Bureau of Economic Research -- The Causal Effect of Environmental Catastrophe on Long-Run Economic Growth: Evidence From 6,700 Cyclones -- ( http://www.nber.org/papers/w20352 ) the graph of the results are shown in the pic -- evidenced based data shows that economic recovery after a cyclone ( aka hurricane -- never happens -- even after 20 years). The effect on the economy, and hence income per capita after one standard deviation storm is -3.4% after 20 years and for a 99 percentile storm, the effect on income per capita after 20 years is -14.9%.
This study was conducted at Columbia university, and the authors have concluded that empirical evidence suggests that recovery almost never happens - they have shown that to be the case after the analysis of 6,700 storms from 1952 - 2008.
Data puts the lie to your musings based on ignorance of subject matter and fact.
http://tribune242.com/users/photos/2016…
John 8 years, 2 months ago
Data can be misused or misunderstood. If we go strictly on the premise of "the results of the study " then should it also follow that because of the non full recovery from these disasters and since the Bahamas is prone to get hit from storms at least every five years, then both our standard of living and quality of living should have deteriorated so much since 1926 after being hit by so many storms and hurricanes, that we should be living at a lower standard and a lower quality of life than our forefathers did in 1936? Since this is not the case and since we have lived in a continual progressive society there ends the credibility of your economic bullshit!
banker 8 years, 2 months ago
The economic (as you put it) bullshit, is not mine dear sir. It is from minds much greater than mine.
Let me again point out your faulty syllogism:
You are thinking in pure linear terms. Let me put some dimensions to your thinking and elucidate the true meaning of it when stripped of the simplistic linear thinking.
Your simplic assertions assume that because of the negative percentages in the data, that the overall economic growth from each storm would decrease the overall economy by that much. What in fact we are talking about here is EFFECT.
So let us assume that the economic drivers show a growth trajectory of x percent. Along comes a storm. The EFFECT of the storm is that the economic growth is retarded by -14.9% for a 99 percentile storm and -3.6% for one standard deviation storm. Then the effect of the storm is a -3.6% decrease on the temporal outcome (the x percent) of the growth trajectory and not the final number of economic growth.
See, it's not a straight line that you assume it to be. It is a complex layer of abstraction. Your linear thinking is like an assumption that by looking down the throat of a person, you can see out of their ass.
John 8 years, 2 months ago
Obviously you left out the magic words "all other things being equal (or remaining the same)" but do they ever.
John 8 years, 2 months ago
In fact you can go even further back to the times of Columbus and see hurricane and were a natural part of civil society. When Colombus lost two ships in a storm, he rebuilt and came back to "the new world ". Hence were are where we are today (socially and economically).
sheeprunner12 8 years, 2 months ago
Natural disasters have historically altered the fortunes of countries ........ just look at what the impact of the Irish potato famine, Midwest Dust Bowl, sub-Saharan Africa desertification and now, climate change is doing to SIDS ......... we are one of the most vulnerable of all of he SIDS right now and we must take proactive measures to adapt ............. building in swamps, exploiting coastal beaches and cutting down ridges and hills are very foolhardy ............ Environmental zoning and proper land use planning and disaster mitigation has to be a priority for any responsible Bahamian government
John 8 years, 2 months ago
So then what you should say is @the billion dollars injection into the Bahamian economy will not have the same effect it would have had, had there not been a natural disaster a/k/a hurricane Marhew, but there will be some economic benefits and stimulation, if only in the short and medium term." But instead you try to discredit my posting by calling me economically ignorant. Now you try to muddy the matter even more with your statistics and linear theory which basically are saying the same thing: for there to be some percentage reduction in the economic impact of hurricane recovery spending there has to first be some economic benefits. Tangible ones.
sheeprunner12 8 years, 2 months ago
John .............The government gets a lot of UR2.0 and hurricane donations, most goes unannounced or underreported to the public and who benefits from it??????? ........then we see all kinds of ad hoc responses that do not seem to solve the long term situations ............that is the big problem
Economist 8 years, 2 months ago
John, I wish it were not so , but the Billion dollars will not stay in the country, that is the problem. In addition NEMA is like a 2 inch water pipe hooked up to an 8 inch water pipe, it will restrict the flow to a trickle.
John 8 years, 2 months ago
Do you know war was used as an economic tool and probably still is? When things got bad they would start a war, kill off a bunch of people and destroy a lot of stuff, then spend the next few years making babies and rebuilding.
John 8 years, 2 months ago
Well my last comment on this: ride past any of De'Aguilars Superwash: those machines haven't stopped operating since before the storm. People have no electricity so his service is in great demand. Super Value's president claims his sales were up 80% just prior to and after the hurricane. Gas stations were selling out of fuel faster that they could replenish supplies. Same with ice and water. Now the shift will be to roofing supplies and building materials. Some business will make more in a month (or week) than they made in almost a year. This is spending that was not planned for. It is money people had to borrow, drain of their savings account or forgo the payment of other bills. So you will have some people who have become very wealthy because of the storm and others who have lost everything. Even the shirt of their backs. Economics says that some of that money now has to flow back in the opposite direction. That is the only way the economy can sustain itself. Then the new injections of capital in the economy have to benefit the 'have nots' more the ' haves' else it is useless. So if officials go about hoarding and stealing hurricane donations and supplies, they will make recovery even more difficult.
sheeprunner12 8 years, 2 months ago
That's services ......... not natural resource creation or manufacturing ....... nothing new been created ........ Superwash is ONE person getting richer
banker 8 years, 2 months ago
And taking money from other economic endeavors.
What is happening here, is not economic activity, but rather robbing Peter to pay Paul. In this closed economy the restoration money is being diverted from other things. Can you imagine how the huge capital pools of the insurance companies will be depleted?
Which brings us to another question -- if the insurance companies invested their reserves in government bonds, and the bonds are illiquid at this point in time with the government issuing bonds and special purpose vehicles left, right and center, what is going to happen to their capital base, their reserves, and their ability to pay out? Will the taxpayers yet again foot the bill?
SP 8 years, 2 months ago
......................... Kenya To 'Purge' Land Ministry Of Corrupt Cartels ...........................
https://www.yahoo.com/news/m/5ff28e2b-a…
Anti-corruption watchdog Transparency International Déjà vu Bahamas!
ThisIsOurs 8 years, 2 months ago
Then they will implement NHI to push us over the cliff faster
sheeprunner12 8 years, 2 months ago
How can Perry fix his mouth to extend NHI beyond primary care ???? based on what has happened in the past month, NHI is dead.
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