The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ ability to attract high-quality investment and manage restoration costs following Dorian will be critical to avoiding a sovereign credit rating downgrade, a cabinet minister says.

K Peter Turnquest, deputy prime minister and minister of finance, conceded that the government was “obviously concerned” about such an outcome but said both Standard & Poor’s (S&P) and Moody’s, the two credit rating agencies, had so far shown “understanding” about The Bahamas’ plight.

Emphasising that The Bahamas can only focus “on the things we can control”, Mr Turnquest said The Bahamas might even enjoy “a boost to GDP” and economic growth as a result of all the reinsurance inflows, together with the necessary private and public investment, that is required to restore east Grand Bahama and Abaco.

While not the sort of economic growth that The Bahamas has been seeking, the deputy prime minister added that the government “does not anticipate going to the markets at the moment” to borrow extra funding for Hurricane Dorian recovery.

Mr Turnquest said the Government planned to draw on the $100m credit facility from the Inter-American Development Bank (IDB); bank financing; the $30-$40m worth of dormant account balances held by the Central Bank; the $12.824m made available by the Caribbean Catastrophe Risk Insurance Facility (CCRIF); and other sources to kick-start rebuilding efforts.

“Obviously we are concerned about it,” Mr Turnquest replied, when asked by Tribune Business about the prospects for a post-Dorian credit rating downgrade. “This is a significant event, and we’re going to have to manage this very carefully, but the rating agencies have indicated they understand the situation.

“As long as we manage the expenditure, and target the kind of resources from an economic perspective that we anticipate in terms of continued investment, we should be OK. These are things that are not unexpected. It’s a matter of how we manage it, and the pace at which investment continues.

“That’s what we have to concern ourselves with in controlling the things we can control. The Carnival signing is a significant confidence boost, and the negotiations with RoyalCaribbean and ITM (over the Grand Lucayan) continue on at pace.”

Both rating agencies thus far appear to have adopted a fairly sanguine attitude towards the likely impact that Dorian will have on the Bahamian economy, and key fiscal indicators such as the annual deficit levels and $8bn national debt, in the short to medium-term.

S&P, whose analysts are due in The Bahamas for their annual assessment within the next fortnight, has yet to make any official statement or action on The Bahamas. Moody’s response to-date has been to release an investment note on how Dorian has exposed this nation’s vulnerability to climate change, but its estimates of the likely economic fall-out were relatively benign.

The Bahamas was relegated by S&P to so-called ‘junk status’ under the former Christie administration, where it remains - hovering just one or two steps below investment grade. Thus nation has retained its ‘investment grade’ status with Moody’s, albeit only by one notch, with the agency last year removing its “negative” outlook on this nation and upgrading it to stable.

Despite the rating agencies’ mild reaction to-date, there is no doubt that the Government and Bahamian taxpayer will incur substantial costs to rebuild east Grand Bahama and north Abaco. Dr Duane Sands, minister of health, last week told Tribune Business that healthcare restoration costs will be worth around $90m.

And Desmond Bannister, minister of works, said the cost of restoring water and power alone to Abaco will be between $95m to $110m. Add in the healthcare projections, and the Government will have to invest close to $200m in these three areas alone. The cash-strapped nature of Water & Sewerage and Bahamas Power & Light (BPL) means these burdens will fall on the Bahamian taxpayer.

These figures, too, do not include the roads, bridges, public docks and other public buildings that will have to be repaired and replaced, meaning that the Government’s total bill - setting aside that of the private sector - is already running into the hundreds of millions of dollars.

Mr Turnquest, though, said the insurance and private investment inflows required to rebuild projects such as Baker’s Bay & Golf Ocean Club, multiple Abaco resorts and second homes could ultimately provide a boost significant enough to drive unexpected economic growth.

“We anticipate we might have a boost to GDP from this, believe it or not,” Mr Turnquest told Tribune Business. “It’s not the kind of boost we want but there’s a lot of physical infrastructure work that has to be done. We have to build back, and build a lot more resilient, to ensure the Bahamian people get the kind of infrastructure they need going forward.”

The deputy prime minister declined to be drawn on the value of the damage/loss inflicted by Dorian, or the extent of the hole it has blown in the Government’s fiscal consolidation plan, other than to say it expected to have data this coming week on the issue.

He added, though, that the Government intended to “build off” the Economic Recovery Zones unveiled by the Prime Minister with a “comprehensive plan” for Dorian restoration and recovery also due to be released imminently.

And Mr Turnquest revealed that the Government does not plan to tap the local or international capital markets for bond financing yet, saying: “We are not anticipating going out to the markets at the moment.

“We have already made plans with respect to the contingent line, which will fund some of it. We have some funding through other sources; bank money, CCRIF and the rest of it to address the immediate needs urgently.”