By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
Moody’s yesterday expressed alarm at the “significantly worse” fiscal deterioration unveiled by the Government’s 2017-2018 Budget, although its lead analyst indicated no ‘junk’ downgrade for the Bahamas is imminent.
The credit rating agency, clearly taken aback by the Minnis administration’s much-revised fiscal forecasts, warned the global markets that its planned $722 million borrowing showed this nation’s fiscal strength was “much weaker” than it had bargained for.
Forced by surprise to adjust its own fiscal forecasts, Moody’s wrote-off its previous projection that the Bahamas’ direct government debt-to-GDP ratio would stabilise below 70 per cent, instead estimating that this will continue to climb through the 2019-2020 fiscal year - in contrast with the Government’s forecast that it will peak near 73 per cent in 2017-2018
Warning that the Bahamas’ debt-to-GDP ratio was the highest for any country it had rated one notch above so-called ‘junk’ status, Moody’s said this nation was seeking to achieve fiscal consolidation from “a more negative starting-off point” - especially given its vulnerability to major hurricanes in the absence of funding reserves to cover damages.
“The Budget indicates that the Bahamas’ fiscal outlook is significantly worse than what we had incorporated into our current projections,” the credit rating agency said. “Revised government estimates point to a higher deficit for fiscal 2017, and deficits (rather than surpluses) in the coming years.
“Wider, serial deficits will lead to rising debt and delayed debt stabilisation. Whereas we previously had expected that debt would stabilise this year, we now forecast that debt-to-GDP will rise until 2019, peaking above 70 per cent of GDP. The combination of significantly worse fiscal deterioration and delayed stabilisation of debt metrics puts downward pressure on the Bahamas’ credit profile.”
Moody’s said the new government’s estimate of a $500 million deficit for the 2016-2017 fiscal year included “revenue underperformance and expenditure slippage” under the former Christie administration, as well as the impact from Hurricane Matthew.
The New York-based rating agency noted that the current fiscal year’s deficit was equivalent to 5.5 per cent of Bahamian economic output (GDP), and contrasted this with both the $350 million (3.8 per cent of GDP) and $100 million (1.1 per cent of GDP) estimates given by the previous government - the former as recently as March 2017.
Pointing to the obvious contrasts and contradictions between the two governments’ estimates, Moody’s added: “Through the first eight months of fiscal 2017, the deficit had reached $290 million, implying a 72 per cent widening of the deficit to match the FNM’s estimate in the past four months.”
“Authorities said that borrowing plans for fiscal 2018 will total $722 million (7.8 per cent of GDP) to cover unfunded spending committed in fiscal 2017, and the expected deficit in fiscal 2018. This indicates that the Bahamas’ fiscal position is much weaker than we had previously expected, even after accounting for the slippage caused by Hurricane Matthew.
“Consequently, we no longer expect the Bahamas’ debt levels, which had already climbed to 67.3 per cebt of GDP from 48 per cent of GDP during the past five years, to stabilise below 70 per cent of GDP. Instead, we expect that they will rise at least through fiscal 2019. At these levels, the Bahamas’ debt-to-GDP ratio will be the highest for an emerging market sovereign rated ‘Baa’.”
Moody’s also described the Government’s deficit reduction, and fiscal consolidation targets, as “somewhat optimistic” given the Bahamas’ four consecutive years of zero or negative economic growth.
It added: “Although fiscal consolidation efforts, including boosting revenues through higher tax compliance and measures to rein in expenditures, have the potential to stabilise the debt trend, the Budget communication clearly points to a more negative starting-off point.
“Additionally, there remain downside risks owing to a still-weak, albeit recovering, economy and the Bahamas’ susceptibility to climate-related events, such as hurricanes, that imply a fiscal cost in the absence of buffers.
“The Budget envisions a somewhat optimistic deficit reduction path through fiscal 2020 without material changes to current policy, particularly in a still weak economic environment,” Moody’s continued.
“The new government forecasts a deficit of $322 million (3.4 per cent of GDP) in fiscal 2018, and deficits of around 2.3 per cent of GDP in fiscal 2019 and 1.1 per cent of GDP in fiscal 2020. This compares with previous official estimates of a small deficit of $28 million (0.3 per cent of GDP) in fiscal 2018 and surpluses beginning in fiscal 2019.”
The only good news from the Bahamas’ perspective is that it retained its investment-grade rating with Moody’s - at least for the moment.
Renzo Marino, the Moody’s assistant vice-president, and lead country analyst for the Bahamas, told Tribune Business that while the 2017-2018 Budget’s contents were “a credit negative” for this nation, it wanted to assess the ‘bigger picture’ as it related to economic growth and fiscal reforms before taking any rating-related action.
“At this stage, the fact the Government sees the fiscal strength is weaker is definitely a credit negative from our perspective,” he said in an interview with this newspaper. “[But] we still want to assess a few things.
“Looking at the Budget document and the projections put there, we want to wait and see how the economy performed last year to give us an idea of what future growth in 2017-2018 might be, especially in the context of Baha Mar and the boost that’s expected to provide to the economy, and how this will affect the debt metrics of the Government. Based on that, we’ll review the rating of the Bahamas.”
Moody’s currently rates the Bahamas’ sovereign creditworthiness at ‘Baa3’ with a stable outlook, keeping it at one notch above ‘junk’ status following a previous downgrade in August 2016.
Unlike Standard & Poor’s (S&P), which downgraded the Bahamas to ‘junk’ earlier this year, Moody’s has taken more of a ‘glass half-full’ position on the Bahamas and given it time to get its economic and fiscal house in order.
That approach, though, may have been jeopardised by the suddenness, and magnitude, of the correction to the Government’s fiscal estimates, which drag out the fiscal consolidation process amid an ever-increasing national debt which - when the liabilities of the public corporations are factored in - is now around 80 per cent of GDP or four-quarters of the Bahamas’ total annual economic output.
Mr Merino said that following last August’s downgrade, Moody’s had expected both the Bahamian economy to start recovering from years of weak performance and the Government’s debt to show signs of medium-term stabilisation.
Even allowing for Matthew’s impact, the rating agency had still expected the debt-to-GDP ratio to peak this year - then stabilise - until last week’s Budget.
“The incoming government presented a worse fiscal situation for the Government,” Mr Merino said. “One of the take aways from the communication, and this is the key, is that without any measures the debt will continue to rise for the next two to three years.”
Moody’s acknowledged the fiscal measures outlined in the 2017-2018 Budget, saying: “The FNM government has stated that over the coming months it will perform a review of revenues and expenditures to identify opportunities for greater fiscal consolidation than what the Budget presented. Authorities also will seek to introduce fiscal responsibility legislation, strengthen procurement processes and increase overall fiscal transparency.”
Mr Merino said Moody’s “understood” that the Government would assess potential measures to reduce spending and enhance revenues within the next 90 days, and wanted to discuss these and other aspects of the Minnis administration’s plans when it made its annual summer visit to Nassau.
The Moody’s analyst’s comments underscore how the Government needs to restore trust in its fiscal credibility, with the nine-figure gap between the Minnis administration’s projections and those of the prior government threatening to undermine business, investor and consumer confidence - as well as that of the credit rating agencies - unless the differences were properly explained.
The Government, in unveiling the 2017-2018 Budget, revealed that the upcoming year’s deficit is projected to be $323 million - an almost $300 million increase from the $28 million in ‘red ink’ that was forecast by the Christie administration just 12 months ago.
Raising further questions about the former government’s fiscal forecasting, the deficit for the current 2016-2017 fiscal year is now estimated to be $500 million - a five-fold increase upon the $100 million that was forecast last May, and $150 million more than the mid-year Budget estimate - given just three months ago in March.
While Hurricane Matthew played a role in the deficit growing 400 per cent beyond projections, the former government was accused of exacerbating the storm’s impact by entering into unfunded spending commitments that had created a $300 million government payables “backlog”.
Based on Moody’s comments yesterday, K P Turnquest, the minister of finance, was right to be concerned about how the rating agencies would react to the 2017-2018 Budget. Much now hinges on whether the Government can provide a convincing explanation when it visits.
Comments
TalRussell 7 years, 6 months ago
Comrades! Why "Train Wreck" KP, could've possibly thoughts there was no way for Moody's to have heard about him borrowing $722 million after just being on the minister finance's job - for but (19) days [including time off on Saturdays, Sundays & Public holidays]
tell_it_like_it_is 7 years, 6 months ago
Over 700 million is insanely high. Is there no way around this? It's really sad that we are in this state right now. The government needs to be carefully cautious to prevent things from getting even worse in the near future.
ThisIsOurs 7 years, 6 months ago
I don't think they put much thought into it. How could they? It's only been two weeks, they basically accepted whatever Halkitis wrote, most alarming is they said they'll keep the current level of spending on BAMSI and UR?? How? They don't know what the "current level" was used for and most people suspect a large portion was padding
TalRussell 7 years, 6 months ago
Comrades! Hangs on this.
"KP" said the PLP had left the cupboards bare. So what does "KP" do - he goes with red beggars cup in hand to borrow $722 million - $722 million that will come with a tsunami of high borrowing costs that will roll across the Bahamaland - the likes of which no alive, or dead, citizen, resident or tourist - have ever experienced from hurricane's raging sea waters. Debt going drown all us!
sheeprunner12 7 years, 6 months ago
Moody's was willing to accept all of the "PLP glitter" up to 2016 ......... so why are they surprised now????????? .......... The FNM government must work without being hamstrung by Moody's
ThisIsOurs 7 years, 6 months ago
They have new information. KP said they found 300 million in new obligations, 100 million written the week before elections, and everyday they're uncovering more. Will be interesting to see how much is left of the hurricane relief fund, remember it was only about a ~month ago that Shane said they hadn't drawn down on any of it...only God knows....
TalRussell 7 years, 6 months ago
Comrade ThisIsOurs, holy Moses, sweet Mother Jesus - I hope "KP" doesn't discover another $300 million PLP obligations.... The red minster finance might have go in hock to the numbers man's...and you knows their interests rates going be like sea waters coming at us like two tsunami high interest rates and they gonna have loan setup fees for this and that.
I tell you - we is all going drowns in debt under "KP".
ThisIsOurs 7 years, 6 months ago
lol, not salami interest rates
TalRussell 7 years, 6 months ago
Comrade ThisIsOurs, I thinks we need open a "Reform School" for red shirts Cabinet Ministers?
sheeprunner12 7 years, 6 months ago
Sooooooooo......... Who is going to lend KPT the $700million?????
TalRussell 7 years, 6 months ago
Comrade, I hear it's the numbers man's?
proudloudandfnm 7 years, 6 months ago
In other words...
CUT SPENDING!!!
ThisIsOurs 7 years, 6 months ago
That's what's weird, they haven't given any indication that they're trimming anything...KP actually said they'd "try" to keep the budget at 2016 levels. It was astonishing. It's like they're setting up to run their own Lunch Lady Reckley program.
Socrates 7 years, 6 months ago
no surprises here at all. both governments talk about rising debt, credit ratings, cutting expenditure, etc., and what happens? nothing.. we borrow more, spend more and keep throwing good money after bad.. i think the end to this story is glaringly obvious... we're headed for World Bank/IMF intervention. just a matter of time.. how can you keep spending what you do not have?
TalRussell 7 years, 6 months ago
Comrade Socrates, try telling that to the "Debt-Addicted" KP. I mean, how enormous will the national climb under minister finance KP? He seems be willing to test the maximum he can borrow over the shortest time period. It's as if Minnis is most comfortable functioning as some form of Regal Prime Minister - remaining out the decision making loop of his crown ministers?
Word coming out the cabinet room is done saying, Dionisio D'Aguilar is eying the deputy prime minister's position?
ThisIsOurs 7 years, 6 months ago
I don't believe he has a full appreciation for what needs to be done at that ministry, said so before, he would need seasoned help other than those who oversaw the 2012-2016 apocalypse. Before the election I got the impression he was more taken with media presence than actual substance. I would have liked to have seen someone like Dr Sands at Finance (not literally Dr Sands, just his qualities), because he's thoughtful, I think he would have had a more systematic approach and I'm almost certain there would have been talk of cutting the fat. One good thing about thoughtful people when they don't know a subject matter they ask around until they do. The danger of knowing a little is you tend to think you know... and don't give you no bodyguard, it ower den.
I know none of these people btw, I could be wrong (God be merciful, grant us grace) just assessing them on the various interactions they've had with the public.
I am still waiting for a townhall style presentation by the government, multiple sessions, part presentation part presubmitted questions and answers, where they lay out their approach to the entire government. Focusing heavily on how they'll turn it around, ethics, transparency, retraining, counteracting the vice of gaming, cuttng spending. And then a repeat in 3 months or so when they have more flesh on their plan and then another one the next quarter. Make it interesting, examples, graphics, "meaningful" handouts, participation, don't want anyone droning on, a panel that's a theoretical mix between Dr Sands, Dr Deleon Brennan and Juan McCartney types, Dr Brennen is very thorough. Knows every detail, Dr Sands knows the details too but he's a better "teacher", he can bring the subject down to basic levels. Juan MCartney is cut to the chase and .."interesting"
killemwitdakno 7 years, 6 months ago
Yeh, being party line stupid giving a damn obituary!
killemwitdakno 7 years, 6 months ago
To think, all we have to do is MAKE OECD PAY FOR CRS!!
Porcupine 7 years, 6 months ago
Are we missing the point of what the future holds for us in The Bahamas? Cutting pensions. Cutting social services. Selling off our public utilities. Selling off our public properties. Rising prices. Increasing crime. Lower wage jobs. Increasing unemployment. FNM - PLP it won't matter.
John 7 years, 6 months ago
The PLP left a dead Bahamian economy propped up and on life support pretending it was alive and well, a closed and uncertain Bah Mar, sold one softly opened, a Freeport and Grand Bahamian economy dead and at it's lowest ebb, a NHI plan without a $100 million funding, dozens of other projects unfounded or underfunded and scandal after scandal after scandal. Millions on top of millions missing promises broken crime out of control. Now we complain about the price of medication and the cost of recovery.
banker 7 years, 6 months ago
Jumping Jehoshaphat -- another intelligent, cogent point! Concur.
ashley14 7 years, 6 months ago
I wish this wasn't the case, but it seems to be. I hope the newly elected officials have a clue and want to fix the problems. I'm here right now and sense a lot of hardships that the Bahamian people have been living with. It is a shame. You live in a paradise, but it's hard to see that when your unemployed and your family is going without. I pray for change everyday. I was hoping to find a old friend, no luck so far.
sheeprunner12 7 years, 6 months ago
IF THIS MINISTER OF FINANCE DOES NOT CUT THE PORK OUT OF THE 2017-18 PLP BUDGET, HE WILL COMMIT THE FIRST CARDINAL SIN OF THIS GOVERNMENT
banker 7 years, 6 months ago
Another blow -- NAD the airport development company's debt was downgraded. Probably based on declining revenues and declining tourism. Another kick to the gonads for the Bahamas.
licks2 7 years, 6 months ago
Hahahahahahahahahahahahahahaha. . .its a good thing that doc got "baptized in fire" before he took over this country of complaining fools. . .fools who don't know very much about anything but erry ninny and he brudder got "experts" in complaining and een gat a lick of sense of how them things go!! For example, I don hear plenty "how to" get things done right from these posts!! This is proof positive that yinna een know what they heck yall talkin about. . .een been two months yet and errybody done tellin the government how to "run things". . .Lol! Well. . .I will wait to see what will happen. . .the last government took 5 years to wrinkle this thing up and yinna want this one to take less than one month to unwrinkled it!! I suggest that yall go find something to do with yinna time. . .hehehehehehehehehehehehehehe!!!
ThisIsOurs 7 years, 6 months ago
No one asked them to "solve" it, no one asked them for a full fledged plan. People are looking for the signals that indicate they're on the road to a cogent plan, saying "we're going to keep BAMSI and ..UR funding at 2016 levels" is the absolute worst signal you could send. That's like zero effort at any kind of forward movement. It has ONLY been two weeks so they gat more than enough time to course correct. But I for one hope everybody keeps complaining until they see the right signals
As to solutions how about merging UR and social services? They're the same thing anyway. Why have two secretaries and two directors and two printers and two coffee makers, two janitors, two rental buildings etc etc etc, unnecessary duplication. Merge them, analyze the staff and see how they can be redistributed for a more streamlined consolidated effort.
Merge BTVI and the National training agency. Same argument, two secretaries, two janitors, two security guards, two properties to manage, two BEC bills, two cable bills, two rental agreements and on and on.
Number three, everyone throws out that salaries is 70% of the budget. Human resources review at every ministry. What jobs do we need to run the ministry efficiently and what jobs can we cut. What jobs would be eliminated with a good IT system upgrade? Identify the jobs that are not progressive, identify the skills we need in the country and use the salaries to pay the excess staff to LEARN. Give them two to three years paid salary to learn a new skill. They show up for work and they in the class.
Number four, BAMSI, the first thing they need to do is identify the crop that indicates we are self sustaining, it ain't bananas and onions. Identify the farmers who are already producing a part of the crop. Make sure there is some redundancy in the system, multiple islands etc. then identify persons who want to get into farming, pair them with a mentor and give them one or two crops to grow. The balance of the crops are the responsibility of BAMSI.
Crime: CCTV, two new prisons. One that is an EDUCATIONAL facility for the petty criminals. The second is maximum security but even that has a strong educational component, cause some of them will reenter society. Two boarding schools for at risk boys, this one is a little touchy, but I think these boys need to be separated into special schools with very low populations so they can receive maximum attention. Again strong emphasis on guiding them to find their purpose.
The dump....I hope Romi does a better job than he did with Carlton in terms of preparation. And that's all I have to say about they.
So you have some long term and some short term. The short term is funded, the long term requires further expansion to deter mine IF we can take it on in this term, if not we can have the plan in place waiting for the funding.
sheeprunner12 7 years, 6 months ago
Good points .......... send them to the OPM press secretary
ThisIsOurs 7 years, 6 months ago
I will do that, I wonder if they'll read it :-|
OMG 7 years, 6 months ago
And yet every day for weeks we have over three D8 bulldozers, excavators and trucks reducing a hill to build so called 30 million dollar hospital in Palmetto Point ,Eleuthera at phenominal cost. . I don't care if it is budgeted for, use that money (if it ever existed) to reduce the debt. What is wrong with the politicians stop these projects dead in their tracks-simply upgrade the existing clinic. STOP SPENDING NOW .
BahamaPundit 7 years, 6 months ago
The vibe I am getting from the FNM is turtle speed slowness. Exactly what I feared would happen. It seems they are on "go slow." They don't seem to have been ready to govern from day one. In fact, they seem lost. Unsure of who they are and what they are supposed to do. They are off to a terrible start in my opinion. Watching them is like watching grass grow. Unfortunately, The Bahamas needs speed to survive or it will sink into the mangroves and dissapear.
TalRussell 7 years, 6 months ago
Comrade BahamaPundit, even the Red Shirts own supporters were not impressed with the red party's performance as Her Majesty's Loyal Opposition Party - so why the surprise? The reds are only the government of the day, many thanks to PM Christie's failures to reign in his cabinet ministers most questionable conducts.
Some see the faces some reds elevated to high office and feel that they too need careful 'conflict' watching.
avidreader 7 years, 6 months ago
Perhaps they were never certain of an election victory and so have been, in a sense, taken by surprise. Of course, these are early days yet but the voters are somewhat surprised to hear about BAMSI spending continuing as if the PLP were still in office after all that criticism directed toward the project. BMSI will never be able to feed this country. That is a simple fact. No government is or ever has been seriously committed to this country achieving agricultural self sufficiency. After all, they cannot impose customs duties on locally grown crops. The rest of us can only hope that we haven't jumped out of the frying pan and into the fire. Only time will tell.
sheeprunner12 7 years, 6 months ago
BAMSI does not have to feed the country ........ it was designed to provide expertise, research and innovation in agriculture and fisheries
ThisIsOurs 7 years, 6 months ago
That's not 100% true. one of the stated goals of the project was for us to have our own sustainable food supply. They can change the goal to just educational but that would cancel out the wisdom in the decision, why go through the expense of millions of development costs when they could send one student to Trinidad for pennies with an already well established agricultural program
ThisIsOurs 7 years, 6 months ago
Don't think they were taken by surprise, I think they were more focused on marketing over substance. The mistake most people make with planning is they think it can be done when you get "there", but day-1 brings it's own challenges. There are a lot of areas they could have had well developed plans for, for example those iPads for the schools. I'm going to bet they haven't thought of anything past when the first child steps on their iPad or drops it in the toilet. But saying you're giving primary school students iPads "sounds" good.
sheeprunner12 7 years, 6 months ago
ThisIsOurs ......... identify the BAMSI staple crop for the Bahamian diet ..... Identify the three core support crops ......... Identify the core red meat ....... Identify the core poultry ........ Identify the three core vegetables & fruits ..... When you have done that, start reducing imports by 10% each year and building local supply & demand ........ The FNM can do that in FIVE years
ThisIsOurs 7 years, 6 months ago
Ok. Your plan sound better than what I hear so far....when you running?
sheeprunner12 7 years, 6 months ago
BOL ............. Smarter people do not seek to go to Parliament (they are lobbyists)
BahamaPundit 7 years, 6 months ago
It's like hiring an ER surgeon because your guts are hanging out and he just pokes about and says man, you're in bad shape. Duhhhh. That's why I came to you. If you don't have the answers why did you put yourself up for ellection. A two year old can borrow 700 million. Any fool csn do that. Why are you here? Have you no skills?
BahamaPundit 7 years, 6 months ago
We elected a doctor because we are sick. If he can't fix us, he should resign and give the job to Bran.
BahamaPundit 7 years, 6 months ago
I don't want to hear another word about stollen or misused money. Either lock people up or shutup and deal with it. No more crying.
Alex_Charles 7 years, 6 months ago
As it stands now, this place is definitely going under.
concernedcitizen 7 years, 6 months ago
You want us to crash into a economic depression ,cut government spending too quickly .Did austerity get Europe out of the recession ?? Our tourist arrivals are down about 4 % ,,cut government spending too rapidly and our economy will crash and our dollar will be worth about 40 cents to the US dollar and there will be a cash flight like you can,t imagine . The PLP blew through and stole much of 3 billion dollars , much of it stashed over seas , as much as I hate borrowing if we did not no civil service would be paid ,considering 1 in 4 work for the government the economy would crash .The way out is a 10 year freeze on hiring civil service and cut corruption
sheeprunner12 7 years, 6 months ago
Agreed ......... austerity is not our best option ........ promotion of self-sufficiency and changing our cultural reliance on imports is the best alternative ........ Bahamians have got to begin to "love Bahamian"
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