The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

MOODY'S will likely stoke fresh political controversy over the Government's 2016-2017 deficit through its revelation that both parties' figures are accurate - from a certain point of view.

The rating agency, in its October 24 assessment of the Bahamas' sovereign, suggested the Christie administration's $350 million full-year deficit forecast - given at end-March - was correct using the Government's traditional cash-based accounting methods.

It pointed out that the Minnis administration reached its latest $695 million deficit number, "slightly higher" than Moody's own $636 million estimate, using the different accrual-based accounting method that incorporates spending commitments made but for which funds have yet to be released.

Should the Government persist with this method and "clear the arrears", Moody's suggests the 2017-2018 fiscal deficit will "drop significantly" - putting additional gloss on the Minnis administration's efforts.

"The Government has revised up its estimate for the fiscal year that ended in June to $695 million (6.1 per cent of GDP) from $500 million as presented in the May Budget speech," Moody's latest credit opinion said. "This deficit figure, which is slightly higher than our own estimate, is presented under accrual basis as it accounts for arrears on expenditure items the Government has yet pay.

"We estimate that under the cash basis, which corresponds to the figures published by the Central Bank of the Bahamas, the deficit reached some 3-3.5 per cent of GDP. As we present the fiscal numbers on a cash basis for the Bahamas, assuming that the Government clears the arrears in 2017-2018, the deficit will rise from this level. Alternatively, under accrual terms the deficit would drop significantly as the arrears are cleared."

The Government has used the $695 million deficit figure to bash its predecessor for allegedly irresponsible fiscal management, accusing it of "leaving the cupboard bare" and giving the present administration little room for manoeuvre.

However, the now-Opposition PLP will likely seize on the Moody's report yet again to accuse the Government of picking an accounting method to suit its needs, and 'back loading' the deficit to paint itself in a better light and shame the former government.

Many accountants, though, would likely back the Minnis administration's choice of the accrual accounting method for the Government's finances, since by accounting for spending commitments it paints a better picture of the Public Treasury's total liabilities.

And questions are likely to be asked as to why Moody's, a sophisticated international credit rating agency, is persisting with cash-based accounting like the Central Bank of the Bahamas.

Elsewhere, Moody's focused heavily on the Department of Statistics' revisions to the national accounts data, which drove nominal GDP for the 2012 'baseline year' up by more than 27 per cent - from $8.4 billion to $10.7 billion.

The rating agency said that while the date showed the Bahamian economy had performed "relatively poorly", enduring a three-year recession from 2013-2015, the expanded GDP had brought this nation's debt ratios down to a level justifying its 'Baa3' investment grade status.

"The new national accounts figures confirmed that the economy has performed relatively poorly in recent years, as GDP expanded 0.2 per cent in real terms last year after contracting for three years (2013-2015)," Moody's said. "This has been a credit challenge for the sovereign as it has also impacted the fiscal accounts and debt trends.

"Nevertheless, as we had expected in our August confirmation of the 'Baa3' rating, the revised GDP figures have better aligned the Bahamas' debt metrics with its rating peers. The Government's [direct] debt stock reached $6.6 billion in June 2017, equivalent to 57.6 per cent of GDP compared to 70.6 per cent under the old GDP series.

"While the Bahamas' debt ratio is still higher than the Baa-median (46 per cent of GDP), it is now closer to South Africa (Baa3 negative, 52 per cent) and Mauritius (Baa1 stable, 59 per cent), and lower than Baa3-peers India (68 per cent) and Hungary (73 per cent). We note that the debt trend remains relatively unchanged as the debt-to-GDP ratio more than doubled in the past decade."

Moody's added that while the Bahamas' interest burden as a percentage of GDP had dropped from 3.3 per cent to 2.6 per cent as a result of the economic output revisions, the "ratio of interest-to-revenues remains one of the highest among Baa-rated sovereigns".

The rating agency said that should the Government realise its objectives of higher GDP growth and fiscal consolidation, "the debt-to-GDP ratio would peak around 63 per cent by the end of 2017-2018 and stabilise around 60 per cent over the coming years.

"We note that, as reflected by the negative outlook, the fiscal consolidation process remains exposed to potential downside risks from weaker-than-expected growth and exposure to climate-related shocks in the form of hurricanes," Moody's added.