The Tribune

The Government must “prove” it can deliver on its fiscal and economic turnaround strategy, the Deputy Prime Minister admitted yesterday, after Standard & Poor’s (S&P) kept the Bahamas at ‘junk’ status.

K P Turnquest told Tribune Business he was “not at all” disappointed at the outcome of S&P’s annual review of the Bahamas’ sovereign creditworthiness, despite having previously expressed optimism that the Government could make the case to be upgraded to ‘investment grade’ status.

Taking a swipe at the former Christie administration, he said S&P’s scepticism about the Government’s ability to execute was “not unreasonable”, given that the credit rating agency had previously been given “big stories” that were never followed through.

Mr Turnquest was speaking after S&P, which downgraded the Bahamas’ to ‘junk’ status last Christmas, elected to maintain this nation’s credit rating at the same ‘BB+/B’ level in its report yesterday.

Also retaining the ‘stable’ outlook from last year, S&P indicated that it wanted to see the Minnis administration deliver on its economic revival and fiscal consolidation plans before returning the Bahamas’ creditworthiness to ‘investment grade’. “We expect the new administration’s solid mandate to facilitate economic and debt stabilisation after significant deterioration,” S&P said, referring to the Government’s landslide general election win.

“The rating on the Bahamas reflects the country’s high external liquidity needs and debt levels - which are rising - and a stagnant economy that has lost competitiveness over the past decade. This deterioration has led to weakened public finances and higher debt levels. Nevertheless, the country’s strong institutional foundation continues to provide necessary checks and balances that have prevented further erosion to creditworthiness.”

S&P warned that it could further slash the Bahamas’ credit rating over “the next one to two years” if the Government’s finances “do not improve as quickly as expected”.

“This could result from stagnant economic growth, external shocks or weakened political commitment,” the rating agency added. “The lack of confidence that this may generate could push debt costs higher, leading to a downgrade.

“Conversely, we could raise the rating over the same timeframe if the Government reduces the annual increase in general government debt beyond our expectations. This, combined with significantly higher economic growth forecasts, could lead to an upgrade.”

As for the ‘stable’ outlook, S&P said: “The stable outlook balances the challenges of overcoming the country’s stubborn economic bottlenecks with the Government’s fiscal consolidation plans.

“The stable outlook reflects our expectation that robust political institutions will anchor fiscal consolidation and higher, albeit low, economic growth over the next one-to-two years.”

S&P is thus taking a similar stance to Moody’s, its fellow credit rating agency, by placing the Bahamas ‘on probation’ for the next 12-24 months to see whether the Government can execute on its economic and fiscal strategies.

It is effectively giving the Minnis administration ‘breathing space’ to deliver on its promises, having been relatively impressed by its plans, but now adopting the mantra: ‘You’ve talked the talk; now walk the walk’.

Mr Turnquest, prior to S&P’s visit, said the Government planned to use the recent successful $750 million bond placement to “make the most compelling case we can” for a ratings upgrade.

That did not materialise and, asked whether he was disappointed, Mr Turnquest told Tribune Business: “No, not at all. I understand the rationale they gave.

“It’s up to us to prove, and show, the plans we’ve outlined are going to make a difference. I understand and appreciate that the rating was held stable given all the circumstances, which are mostly external, and I think it’s a good result.”

The Deputy Prime Minister then hit out at the former administration’s fiscal performance, accusing it of making numerous promises to rein-in its deficit spending and the national deficit, but failing to deliver.

“The truth of the matter is they’ve [S&P] been given big stories in the past that have not been followed through on with any level of commitment, so it’s not unreasonable that they have a level of scepticism,” he told Tribune Business.

“It’s our job to follow through with action on the plan, and that’s what we intend to do and are committed to do. I don’t take comfort from any of this. We recognise there’s a lot of work to be done.

“This is a good interim result, and we appreciate the fact they’ve agreed the plans we’ve laid out have credibility, and it’s our responsibility to put them into action. This is not easy. There are many requirements before us that we have to wrestle with, ensure we don’t allow bad habits to return, and achieve the best result we can for the Bahamian people.”

Mr Turnquest added that he welcomed S&P’s “confidence in the plan” laid out by the Government to set the Bahamas back on track, and said: “It’s not particularly glamorous work.

“It’s grunt work. It’s hard work. The team at the Ministry of Finance is committed to producing a favourable result.”

He said the Government’s fiscal performance for the 2017-2018 Budget year to-date was “pretty much on track”, adding: “There are still some things out there that could cause issues, but at this particular point we’re fairly comfortable with where we are.”

The Minnis administration, though, was slightly more upbeat in its official reaction to the S&P report and rating action, describing it as a sign of confidence that the Government is “putting the country on the path to sustainable recovery”.

“We have outlined our fiscal consolidation plan, which will lead to shrinking deficits and put the country’s debt trajectory on a sustainable path,” Mr Turnquest was quoted as saying. “These include sustained and strategic revenue enhancement measures as well as targeted cuts in expenditure.”

Affirming that the Government will take “even unpopular” measures to set its finances and the economy “back on track”, the Deputy Prime Minister laid out upcoming actions it plans to take.

To improve the efficiency and “cost recovery” of state-owned enterprises (SOEs), and ensure they can stand on their ‘own two feet’, the Government will create a “financial oversight framework” for them in early 2018 to reduce the drain on Bahamian taxpayers.

Public-private partnerships (PPPs) will be used to finance and deliver major public infrastructure projects, in a bid to reduce the Government’s capital outlay and risk exposure.

The Government statement also confirmed that Fiscal Responsibility legislation, including so-called ‘Fiscal Rules’ to act as a check on runaway public spending, will “be in place” by mid-2018.

Mr Turnquest said the Government was “systematically tackling” impediments to the conduct and opening of business, promising that the public will “learn much more” about its plans and the work of the ‘Ease of Doing Business’ committee in the New Year.

He added that foreign and Bahamian investors were “very forthright” in their support of the Government’s “commitment to transparency, integrity and facilitation of business”.