The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is “almost compelled” to improve the Bahamas’ fiscal and economic performance, a top insurer said yesterday, because “the realities are so grim” if it fails.

Patrick Ward, Bahamas First’s president and chief executive, told Tribune Business that the Minnis administration needed to “bring everything to bear” to avoid a further sovereign credit rating downgrade by Moody’s in 12-18 months’ time.

He said the insurer, and all other ‘rated’ companies in the Bahamas, had “breathed a sigh of relief” when Moody’s last month elected to give the Government ‘breathing space’ and time to execute on its fiscal consolidation and GDP growth plans.

With the Bahamas’ sovereign rating a factor that can influence individual companies’ ratings, Mr Ward said he was “hopeful” the Government could maintain its ‘investment grade’ rating with Moody’s simply because the alternative was too awful to contemplate.

“All the rated companies did breath a sigh of relief in relation to that,” he said of Moody’s not downgrading the Bahamas to ‘junk’, “and we’d encourage the Government to bring everything to bear to ensure we avoid any downgrade in the future and, at some point, get the ‘negative’ outlook changed to a ‘positive’ outlook.”

Mr Ward’s comments serve as a reminder that, as the Bahamas begins post-Irma reconstruction and gives thanks that the main islands were largely spared, it must also get back to the business of implementing serious and urgent economic reforms.

Despite maintaining the Bahamas’ ‘Baa3’ rating, Moody’s placed a ‘negative’ outlook on the Bahamas due to doubts about the Government’s ability to deliver on its fiscal consolidation and economic growth plans.

The Bahamas’ “exposure to climate-related shocks in the form of hurricanes” was cited as another factor behind Moody’s ‘negative’ outlook, although Hurricane Irma largely spared this nation’s major islands and economic activity centres.

Mr Ward said Moody’s ‘negative’ outlook “speaks for itself”, although he and Bahamas First were “more concerned” about the actual rating.

“At best it gives you an opportunity to take corrective action,” he added of the outlook. “It’s also a warning indicator that says if you do ‘x’, ‘y’ and ‘z’, you have an opportunity to make things better and improve.”

The Bahamas First chief agreed that Moody’s had given the Government ‘breathing space’ to see if it can deliver on its promises, and added: “The execution is something we have to give the new administration time to prove itself on.

“I’m hopeful because the stark realities are so grim in terms of not fulfilling their obligations. It almost compels them to do the right thing and get us back on track, going in a positive direction.”

Mr Ward had previously warned that sovereign downgrades threatened to have a negative impact on private sector credit ratings, as the agencies assessing Bahamas-based companies would have to account for increased ‘country risk’ stemming from this nation’s reduced creditworthiness.

Reiterating that Moody’s move to defer a downgrade was “extremely important”, the Bahamas First chief said yesterday: “It definitely has an impact in terms of the perception of the country, and the risk associated with doing business in the country from A. M. Best’s perspective.

“Avoiding a downgrade gives us an opportunity to have one less issue to worry about when we think about the business environment.”

Bahamas First and several competitors, including RoyalStar Assurance, Summit Insurance Company and Security & General, are also all rated annually by A. M. Best, the insurance industry rating agency, for their financial strength and creditworthiness.

Apart from focusing on each company, A. M. Best’s analyses also factors in country risks such as the Government’s fiscal position, state of the economy and condition of the insurance market.

Thus another Moody’s downgrade, which would match Standard & Poor’s (S&P) in taking the Bahamas to ‘junk’ status, could impact the cost of capital for these insurers and their ability to raise it in the debt/equity markets.

The negative consequences for Bahamas-based companies as a result of this nation’s eight-year sovereign downgrade trend were also highlighted by the Nassau Airport Development Company’s (NAD) downgrade.

The move by the Fitch rating agency was directly linked to the Government’s deteriorating creditworthiness, with Dionisio D’Aguilar, minister of tourism, saying it had a direct impact on NAD’s debt servicing costs.

“Their [NAD’s] debt got downgraded because Fitch said there’s additional sovereign risk,” the Minister previously confirmed to Tribune Business. “They went to downgrade NAD one rating below investment grade, and one effect of that was they needed to increase the bond reserve fund from $19 million to $38 million.”

This, Mr D’Aguilar added, had forced NAD to increase passenger and other user fees at Lynden Pindling International Airport (LPIA) in a bid to meet the increased debt costs.