MINISTER of Finance Peter Turnquest delivering the budget communication. Photo: Terrel W. Carey/Tribune Staff
By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Minister of Finance has blamed the Christie administration’s efforts “to hide the true extent” of the Bahamas’ fiscal crisis for Moody’s threat to downgrade this nation to ‘junk’ status.
K P Turnquest told Tribune Business he had no regrets about his frank 2017-2018 Budget statement, which revealed that the newly-elected Minnis administration was seeking to borrow $722 million - the majority of which is to cover the $500 million deficit it inherited from the previous fiscal year.
Moody’s last week cited these revelations, together with poorer fiscal consolidation prospects, as the key factors behind its decision to place the Bahamas’ sovereign creditworthiness on review for another potential downgrade (see story HERE).
The move comes as little surprise, given that the rating agency had indicated in a previous June 5 statement that it had been spooked by the Budget’s nine-figure revisions to estimates made just two months earlier.
Should Moody’s act, the Bahamas will have lost its ‘investment grade’ credit rating - and been downgraded to ‘junk’ status’ - by both major rating agencies within a seven to eight-month period. It would also be the fourth downgrade suffered at Moody’s hands within the past five years, the previous ones having occurred in 2012, 2014 and 2016.
Mr Turnquest sought to blame the latest potential rating reversal on the former Christie administration, arguing that the Bahamas had been left exposed by its spending and failure to be fully transparent on the Government’s finances.
“Part of the reason we are where we are is that the previous government tried to hide, if that’s the right word, the true situation,” he told Tribune Business.
“The truth of the matter is that the previous administration has consistently over-sold their plan, and didn’t show the discipline to make it happen.
“We certainly have some reputational positions to recover; that we are who we say we are; that our word means something, and we can be relied upon to deliver the results we say we are going to deliver.”
Mr Turnquest’s comments are likely to reignite the ‘finger-pointing’ and political ‘blame game’ over the Bahamas’ fiscal crisis. The Minnis administration said its predecessor engaged in a hiring and contract signing binge prior to the May 10 general election, with Central Bank figures suggesting this resulted in $234 million of second quarter deficit spending.
The Opposition, led by its finance spokesman, Chester Cooper, attacked the Minister of Finance’s Budget presentation for sending the wrong message to investors and the rating agencies with talk of $722 million in new borrowing.
Neither Mr Cooper, nor Philip Davis, the Opposition’s House leader, responded to Tribune Business e-mails and phone calls seeking comment yesterday. They, though, are likely to argue that, through the 2017-2018 Budget, the Minnis administration brought this potential downgrade upon itself.
But Mr Turnquest, when asked by Tribune Business whether he now regretted his 2017-2018 Budget presentation, replied: “Not at all.”
He explained: “We want to be real with the Bahamian people and investors, and transparent with our international partners. We recognise there are challenges. However, we are committed to addressing these challenges upfront and in forthright manner, and believe the measures we will take will right the ship.”
The Bahamas’ prospects for avoiding a second ‘junk’ downgrade now rest almost entirely on Moody’s visit to Nassau later this month, and whether the Minnis administration is able to convince it - based on the strength of empirical data, and its policies - that it has a credible fiscal turnaround and recovery plan that should be given more time to bear fruit.
“I obviously can’t handicap that,” replied Mr Turnquest, when asked how confident the Government is in its ability to persuade Moody’s against a downgrade, “but I am hopeful we will be able to present a comprehensive plan that we are on the road to recovery.
“As long as we are forthright, and have a plan to recover, the agencies may not particularly like it, but they will see we are being transparent, frank and have a plan.”
The loss of ‘investment grade’ status with a second rating agency would potentially be highly damaging for the Bahamas and its reputation for economic stability, as it signals to the international capital markets that this nation’s creditworthiness (the Government’s ability to pay its debts) is slipping into dangerous territory.
The Government will likely have to pay more for current and future debt issues, raising its debt servicing (interest) costs. Moody’s, should it follow through, thus threatens to trigger an increase in the annual Budget sums that the Government must allocate to pay interest and principal redemptions on its debt/
The added debt servicing costs would suck money away from areas such as national security (Police and Defence Force), social security, education and health, impacting the quality of life for the ‘average’ Bahamian.
And the ‘junk’ downgrade may also deter investors assessing the Bahamas as a place to invest, as it raises questions about the Government’s economic management.
Mr Turnquest acknowledged to Tribune Business that the Government’s borrowing, and debt servicing, costs would likely rise should Moody’s follow through on its threatened downgrade.
But he said the Government would still have access to the necessary funding for its $722 million borrowing, and did not appear to be on the ‘wrong side’ of a hedging transaction - as happened when Standard & Poor’s (S&P) downgraded the Bahamas to ‘junk’.
“It will potentially gave an effect of increasing borrowing costs,” he conceded. “That’s a reality. But in terms of being able to access borrowing, all indications are that we will still have access to the funding we require.
“We are obviously very sensitive to that, and we’ll be doing what we can in order to give the agencies every assurance that our fiscal plan is a workable plan, and that we are committed to it and will be disciplined about it.”
The S&P downgrade triggered an immediate demand for $150 million in extra collateral from the Government, with lenders ultimately requiring it to provide “a minimum of $70 million” via a derivatives transaction the two sides entered into.
Mr Turnquest told Tribune Business this was unlikely to happen if Moody’s took similar action, saying: “That is something we are still looking at, but we don’t expect any calls.”
Outlining elements of the consolidation plan that the Government will present to Moody’s, the Minister of Finance said a draft Fiscal Responsibility Act had already been written.
He added that one of the multilateral agencies had committed to assisting the Government with that Act, and “to make sure the legislation is appropriate, the implementation is workable and to assist with our thinking”.
Mr Turnquest said the Government was also working on a Revenue Administration Bill “to improve our compliance rates, and give the Government the penalties it needs to collect the revenue on its books”.
This Bill is designed to modernise, and standardise, enforcement and sanctions tools across all revenue streams, bringing them into line with the compliance mechanisms contained in the Value-Added Tax (VAT) legislation.
To rein in spending, Mr Turnquest confirmed the Minnis administration is relying on the expenditure reviews announced in the 2017-2018 Budget.
“We’re looking at expenditure to make sure the programmes we are operating today are still viable and necessary,” he told Tribune Business, “and for those we deem to be of continued relevance today, that the costs are controlled and appropriate.
“We are doing a thorough review of government expenditure up and down to ensure we get value for every dollar we spend, and weeding out the wastage that has been allowed to creep into the Government’s expenditure.”
Comments
BahamasForBahamians 7 years, 4 months ago
Okay Hubert and Peter.
Enough of the PLP blame game.
Accept responsibility or quickly implement the recall system so that we can get rid of you!
sheeprunner12 7 years, 4 months ago
Moody's downgrades are not the end of the world .......... Brazil and Argentina did not break the IMF curse until they defaulted on their national debt ....... now 25 years later, they are prospering .......... The same thing is facing Barbados and Jamaica ......... Price you pay for crooked Pingdomites
BahamasForBahamians 7 years, 4 months ago
Hubert and Peter created huge public fear for these same downgrades while in opposition.
We The Bahamian public are not allowing them to backtrack on anything. If it was bad for us while the FNM was in opposition it cannot be good for us now that they are in government.
Alex_Charles 7 years, 4 months ago
Sheep sorry to burst your buble but Brazil did recover, yes... and then fell into complete disaster after 2 natural disasters, the olympics which hurt their economy more than help it and the situation with the now impeached government. Ignoring the horrendous government inefficiency and corruption which led to the ballooning cost of EVERYTHING. The Brazilian economy is STILL contracting at the moment.
Funny how familiar that story sounds right?
watcher 7 years, 4 months ago
While we are going through the "discovery stage" of just how bad the mess left by the PLP is, I will give the new government the benefit of the doubt.
But very soon we will need to see how they plan to REDUCE spending, TIGHTEN UP on wasted resources and monies, and ELIMINATE fat cat contracts and unnecessary government personnel. The only positive news we have had in the last 6 weeks was that $900,000 was going to be cut from the Independence Day celebrations - was this achieved?
sheeprunner12 7 years, 4 months ago
Well .......... if you judge what the government did with 10% of the PLP budget .......... then the future is promising ........ the independence show on Clifford Park was superior to anything the Poitier fella (with the million dollar contract) did under the PLP ....... This show connected with the real Bahamian soul
BahamasForBahamians 7 years, 4 months ago
Again your foot is in your mouth.
Yesterday's show costed the tax payers in excess of $500,000.
They were just paid from other line items in the budget this year. The overtime for the uniform officers exceed the 10% threshold you speak of. Please do some due diligence before posting here.
John 7 years, 4 months ago
Some media are reporting that the downgrade is based solely on the Minnis' government statements that the financial conditions of the country are much worse than was expected and the outlook for growth and debt reduction for the next few years is not to exciting.
BahamasForBahamians 7 years, 4 months ago
It is.. Moody's strategically waited on the new budget before publishing an economic opinion of The Bahamas.
This was not the view prior to borrowing 700million at the stroke of a pen, a Hubert and Peter initiative.
ThisIsOurs 7 years, 4 months ago
I don't have any inside info but I'd be surprised if they sought any advice from Papa. I think the first thing Papa would have said to them was cut cut cut, you can always ask for more later if you need it. The "signals" are important.
TalRussell 7 years, 4 months ago
Comrade "KP" knows exactly what needs doing but like his opposition political colleagues sitting across the opposite House of Assembly floor - this red regime likewise are not prepared rock the establishment's boat. You don't within days of taking over the government - rush out to borrow close to a Billion Dollars. First, you start collecting the bad debts in the hundreds if not the Billions of dollars remaining unpaid to the People's Pubic Treasury" by property owners, unpaid government loans and special accommodations, customs debts, the 'privileged" who are also politically connected to both main parties, businesses, foreigners, etc, etc.
DDK 7 years, 4 months ago
True that!
ThisIsOurs 7 years, 4 months ago
I don't think he knows what needs doing, or he wouldn't have done what he did
OMG 7 years, 4 months ago
So start cutting. In central Eleuthera work is underway for a so called mini hospital at a price tag of 30 million excluding the purchase price of the land. Once built can it be staffed, can it be supplied and almost certainly most serious cases will still be flown out to Nassau. Yes a new super clinic is nice but stop putting the cart before the horse and get finances under control.
BahamaPundit 7 years, 4 months ago
I agree. The PLP is 100% to blame for any downgrade. Two months is not enough time to be responsible for the prior spending.
BahamasForBahamians 7 years, 4 months ago
Larry! the larger population of the Bahamas, not of the lighter hue complexion like yourself, is out of touch with that view.
We are of the view that Minnis sold us dreams of his team's ambition to correct the problems and create a new day in The Bahamas. We do not want to hear the blame game. Otherwise, please have your boss Eileen advise Hubert to quickly implement the recall system. We will be needing it much sooner than later.
realfreethinker 7 years, 4 months ago
Rather racist and silly view. If you believe this decision is based on the words of KPT then you have been drinking the plp koolaid also.
ThisIsOurs 7 years, 4 months ago
I don't know what the actual decision was based on, but my gut tells me a lot of these decisions are about confidence. Ever had to make a decision on whether to give someone more time to deliver? Your decision is largely based on your confidence in whether or not all the time in the world would produce a positive result. I think KP, the lead "strategist", has had so many missteps and done so much back and forth in two months that Moody's must have whiplash. That does not instil confidence
sheeprunner12 7 years, 4 months ago
We will have to swallow this bitter pill .......... suffer now, for better later ..... Black people do not seem to understand that these days in The Bahamas
MonkeeDoo 7 years, 4 months ago
BahamaPundit. They may well not be responsible for the downgrade but to borrow the better part of twelve months VAT receipts boggles my mind. If no one would lend it what would happen to us ? Would we turn into pumpkins. No we would make do with what the hell we had and cut some fat and lazy people from teh payroll. How light a hue are you anyway ?
Well_mudda_take_sic 7 years, 4 months ago
Wow!! Even the bogus credit rating agencies are already of the view that the Minnis-led FNM government will be no different from the previous corrupt Christie-led PLP government. Minnis is going to end up being the laughing stock of our nation (and by extension its voters) in the eyes of the international community. What a joke!
Gotoutintime 7 years, 4 months ago
Mudda---If that does happen where does that leave the Bahamas and its people??
birdiestrachan 7 years, 4 months ago
Turnquest the buck stops with you and the FNM Government. Right away you borrowed 722 million. You said the Government owes $500 hundred million. you guys are messing up BIG Time and so soon. 222 Million for what.? May be trips around the world. so roc wit doc can tell other countries how bad the Bahamas and its people are. come on his first oversees visits he talks about the Bahamas being corrupt.
realfreethinker 7 years, 4 months ago
go away
gbgal 7 years, 4 months ago
We, the people, must learn to understand the Budget details so we can call "foul" long before any Opposition rep does! We have a responsibility as citizens. We can't let 'em get away with shoddy husbandry! They work for us, remember.
birdiestrachan 7 years, 4 months ago
Mr Tirnquest Moody says it is you. What you had to say.
Alex_Charles 7 years, 4 months ago
Honestly this downgrade was inevitable and largely predestined. The current administration will take the blow for this one. IDC how this makes them look or feel, I only care about solutions.
That aside, the 2018/2019 budget will decide the future of this country entirely. It will show whether or not the economy grew or other or not we'll be in a fiscal hell straight to the process of devaluation which is about less than 10 years away on our current trend of economic retardation.
I haven't the confidence that this lot can turn things around in 5 years, but then again I know damn well under Christie and Perrynomics it would have gone south much faster.
ThisIsOurs 7 years, 4 months ago
100% agree. Christie, Fitzgerald and Shame could not be allowed another term. But the country is the FNM's responsibility know, wasted energy pointing out what the last people do.
ohdrap4 7 years, 4 months ago
incease the vat soon enough while you can still blame it on the plp.
but truly, plps spent like drunken sailors.
ThisIsOurs 7 years, 4 months ago
"The Minister of Finance has blamed the Christie administration’s efforts “to hide the true extent” of the Bahamas’ fiscal crisis for Moody’s threat to downgrade this nation to ‘junk’ status.*"
nobody cares, they're gone. You should have had some sort of plan to fix it, something other than "hold the line on spending" and "leave BAMSI and UR as is because people have obligations". The "they just get in" doesn't fly..before the election persons were projecting a 500 million deficit, I believe KP himself said that, they knew hirings were out of control, they knew contracts were being handed out indiscriminately, they had budget projections for five years and requests for further funding as projections were missed. There was a host of information to extrapolate from.
TigerB 7 years, 4 months ago
It would appear that some of us are happy for a downgrade because now the other party is the government. This is rather stupid. PLPs and FNMs and whoever will all feel the blunt of this storm. I still trying to figure out how some of us can say it's the FNM fault when clearly all those contracts, and spending a just up to May 10 was done by the PLP. It's been exactly 2 months. Brvae is still an idiot, he has short memory, very short. It was his government... You people are sick! Downgrades don't come in gold, red or green, it comes in "People" who will pay the price for it.!
ThisIsOurs 7 years, 4 months ago
On July 11th 2017 Moody's doesn't care what the PLP did between May 9 2012 and May 10 2017. They don't even care about the FNM. The only answer that Moody's is looking for is what is the CURRENT GOVERNMENT's plan. In fact they actually said "we're coming to the ?Bahamas AND ...we want to see the plan, how are you gonna turn the country around?
As of May 15 2017, the only thing I have been looking for and you can check my posts is "a plan" I started seeing a pattern with the govt throwing out red meat and nothing else, and while that's interesting, it doesn't solve our problems. We already know the loopholes.
I said on multiple occasions if I am concerned, what must the rating agencies be thinking. And it looks like they're thinking just like me, "it's that bad???? Ok, let me see the plan". This is not about the FNM, this is about saving the Bahamas.
I believe I'm also right to PLEAD for Dr Minnis to appoint a qualified Minister of State for Finance, KP cannot get us out. His ill advised "strategy" is the reason Moody's coming to figure out what we're doing. He could have presented the same information, but together with a "plan" to instil confidence that our strategy would move us in the right direction. He didn't. He doesn't understand. He thinks he's campaigning.
concernedcitizen 7 years, 4 months ago
We did not get here here overnight ,actually it took forty odd years of a bloated civil service , lack of productivity , corruption and teefin on an epic scale , ever increasing cost for tourist w/ decreasing level of service , a large amount of ignorance combined w arrogance and this is where you end up .We are doing the same amount of stopover guest we did in the nineties ,actually our arrivals were down 6% last year , as others in the region give value for money and their numbers have increased .
sheeprunner12 7 years, 4 months ago
So true .......... there is so much blame to go around ....... This FNM Cabinet just need to move on and be pro-active in arresting these institutional challenges that have ham-strung our socio-economic situation
ThisIsOurs 7 years, 4 months ago
It doesn't matter who did what. The most important issue for the Bahamas is getting us from where we are. We don't have time for skeletons now...maybe later, but not now
avidreader 7 years, 4 months ago
With these rating agencies it could come down to a choice between: A. introducing an income tax, B. Increasing the VAT to perhaps 20%, or C. Drastically reducing the public payroll and/or trying to sell off a few government subsidized corporations, or a combination of the above. Perhaps we shall hear a communication on this matter from our DPM in the relatively near future. Personally, I find it hard to believe that a Minister of Finance will have an easy time in deciding upon a course of action that will prove palatable to the general public.
sheeprunner12 7 years, 4 months ago
The FNM will be rewarded for being honest about the fiscal realities of the country ......... Honesty is always the best policy ....... Short term discomfort for long term gain ......... Even FDI will increase if there is an honest government That is the best option to solve this present issue with S&P and Moody's
BahamasForBahamians 7 years, 4 months ago
No. The FNM will not be rewarded by the populace for simply 'telling us what we already".
They were elected to create a new day in The Bahamas and implement the many solutions they heralded on the campaign trail.
Simply put: nothing more nothing less.
BahamaPundit 7 years, 4 months ago
Why do I get the feeling that the FNM are just chilling and relaxing while the country plumets into the abyss? My perception may be wrong, but it still feels that way.
DEDDIE 7 years, 4 months ago
Come on folks,did you expect a miracle within 2 months.
ThisIsOurs 7 years, 4 months ago
No. I expected a plan. I think where the public fell down is in allowing the narrative of "they just get in" to persist. They had a shadow cabinet for five years. They have former cabinet ministers in their party. They understand the structure of government, at least they should, I've heard Zhivago Laing talk quite sensibly about the kinds of things he would look for, because he's been there. So this "give them a chance" thing was the worst thing the public could have done. They should have come in with a comprehensive plan on what they intended to do. Now plans aren't static things, they're living organisms, so as the plan meets actual facts it gets adjusted. But they had nothing. I still can't believe the public let them get away with it. Moody's certainly hasn't, Moody's said "we coming to look at your plan"
John 7 years, 4 months ago
So who is the former MP reportedly being investigated by the FBI? Say the former has sever bank accounts with millions on them.
ThisIsOurs 7 years, 4 months ago
"As long as we are forthright, and have a plan to recover, the agencies may not particularly like it, but they will see we are being transparent, frank and have a plan.”
I'm convinced KP laces his statements with buzz words from social media and talk shows. "Plan". No more "we just get in", "be patient". Because he never takes a stand until it becomes the popular sentiment. Just to clarify I have nothing against KP. This role is most important and needs a qualified person. I had my doubts about whether he could fill it before the election and said so, but hoped the technicians could prop him up, I'm not so sure anymore...
John 7 years, 4 months ago
So what the FNM is saying is correct some 1/2 billion or close to it was abused, misused or misappropriated in the last year of PLP governance alone. And if they have effectively put a stop to that financial hemorrhage and if they gonna get Bah Mar up, open and running and if they are going to stimulate the economy and create new (real) growth then Moody's should be looking to UPGRADE and not looking st another downgrade.
concernedcitizen 7 years, 4 months ago
I say close to a billion ,,200 million walked out the front door OF BOB ,then a least another 100 million to crooked foreign consultants that gets divide up abroad ,one of Bagman Bethels long standing scams
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