The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government was yesterday said to be “very confident” it will raise the full $722 million borrowing target despite its ‘junk’ creditworthiness and the threat of more downgrades to come.

K P Turnquest, minister of finance, told Tribune Business that the Minnis administration’s optimism stemmed from the fact investors were “taking another look” at the Bahamas, having recognised it was “correcting course” on its fiscal policies following the May 10 general election.

Emphasising that the Government hoped not to draw down on the full $722 million it is seeking approval to borrow, Mr Turnquest said it would likely raise the money from a combination of domestic and international sources.

“We’re likely to tap both,” he replied, when asked whether the Government would look to the global capital markets as well as Bahamian debt sources, “but the actual borrowing has still not been fully set. It has still not been determined whether we will draw down on all that.

“You have to bear in mind that the Budget is basically a carry over from the previous administration. While we hope to find significant savings, we have to be prudent.”

Asked whether the Government had any concerns over its ability to raise the full $722 million, especially given its ‘junk’ status with Standard & Poor’s, Mr Turnquest answered: “We are very confident that we’ll be able to raise the necessary capital.

“I think the reality is that investors are having another look at the Bahamas, recognising we are correcting course, and have indicated their interest.” The potential investors were not named.

Concerns over whether the Bahamas’ creditworthiness will act as an obstacle to the Government’s ability to raise the $722 million were alluded to by Chester Cooper, the PLP MP for Exuma and Ragged Island, in his Budget debate presentation last week.

Mr Cooper married this with Moody’s negative reaction to the 2017-2018 Budget to suggest that the new administration’s borrowing plans were “the wrong speech, at the wrong time, and the wrong place” given the fright caused to Bahamian and international investors.

“I wonder whether this is the speech we will take with us when we go to defend the international rating of the Bahamas,” Mr Cooper, a former Chamber of Commerce chairman, asked. “Is this the one that we will take to the debt market? You don’t tell me you broke, you busted, you unemployed and that the ‘cupboard is bare’, then ask me to borrow $722 million?”

Besides covering next year’s projected $322 million deficit, the Government says it also requires an extra $400 million to cover a payments “backlog” and unfunded spending commitments left behind by the previous Christie administration.

And, with deficits of $228 million and $106 million projected for the 2018-2019 and 2019-2020 fiscal years, respectively, the Minnis administration - if it stays true to forecasts - will end up adding $1.056 billion to the Bahamas’ national debt within its first three years in office.

All this, combined with a $500 million deficit forecast for 2016-2017 and other radically revised projections, unnerved Moody’s, which warned last week that the Bahamas’ fiscal strength was “much weaker” than initially thought.

It pointed to the “wider, serial” deficits that the Bahamas will now run, with the Government’s debt-to-GDP ratio forecast to continue climbing for the next several years - in contrast to previous projections.

Yet Moody’s has held off from following Standard & Poor’s(S&P) in downgrading the Bahamas’ sovereign creditworthiness to ‘junk’ for the moment, indicating it is seeking more data on this nation’s projected GDP growth and an explanation for the fiscal changes.

Mr Turnquest, meanwhile, also expressed confidence that the Government’s borrowing demands would not ‘crowd out’ the private sector given that excess commercial banking system liquidity remains near an all-time high of $1.477 billion.

“We don’t intend to take it [$722 million] all at once,” he told Tribune Business. “We’re going to try and realise real savings along the way, and hopefully don’t have to borrow it, or will borrow less of it.”

Acknowledging Moody’s concerns about the “unexpected” higher deficits, Mr Turnquest said these mirrored the new Government’s own fiscal worries.

“Their reaction is not a surprise,” he added. “What is important is that they, and the Bahamian people, realise this Government is serious about, one, our compliance tools are stronger so we collect the revenue available to us and, two, we are serious about reducing the level of expenditure in this current financial year and, going forward, we intend to get this situation under control.”

Mr Turnquest pledged that if the Government’s spending assessments and review failed to yield the desired savings, it would “go back at it again”.

“We’ve allowed this animal to get too big and too expensive,” he said of Government’s size. “We’ve got to get it lean again.

“This isn’t an overnight correction. We don’t want to do anything that will shock the economy and cause harm. We have to take subtle actions where we can, and take drastic action where we find excess, and hopefully in the next two-three years turn the ship in a more positive direction.

“It’s critical that we do it. To the extent we have to take uncomfortable decisions, we hope the Bahamian people give us patience and confidence that we’re doing the right thing for the country.”

Mr Turnquest reiterated that the 2017-2018 Budget forecasts represented a ‘floor’, or worse case scenario, and that the Minnis administration hoped to perform better than projected through its savings and revenue enhancement initiatives.

“It doesn’t take into account the the contribution from Baha Mar and those kinds of things,” he told Tribune Business. “I am anxiously awaiting the end of this particular debate, so we can get to work.”