The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas was yesterday warned by Standard & Poor’s (S&P) that it faces “at least a one-in-three chance” of a further downgrade to its sovereign credit rating within the next 12 months.

The credit rating agency, which maintained this nation’s creditworthiness at “BB+/B” despite cutting the outlook to “negative”, appeared to base its actions and analysis almost entirely on the fiscal blow dealt by Hurricane Dorian with the coronavirus pandemic only a secondary factor.

With tourism, The Bahamas’ major job and economic growth driver, now really starting to feel booking cancellations and postponements due to the reluctance to spend and travel amid the COVID-19 fall-out, several observers yesterday suggested a downgrade could arrive even sooner than S&P indicated depending on how widespread the pandemic becomes and how long it lasts.

Robert Myers, the Organisation for Responsible Governance’s (ORG) principal, told Tribune Business in response to S&P’s report: “It’s not like it’s bad enough already.” Arguing that The Bahamas was already “in another crisis”, he added that both the government and ordinary citizens needed to brace “for a storm” created by a combination of category five hurricane and pandemic.

“My only comment would be that I don’t think that data [S&P report] accurately reflects today’s news,” Mr Myers added, referring to the worst daily crash suffered by the London and New York stock markets for 33 years since “Black Monday” in October 1987.

“The Government of The Bahamas and the citizens of The Bahamas should ready themselves, and prepare themselves, for another storm,” he continued. “It just means we are in another crisis. I hate to say it, but we are. There’s going to be some panic.

“If that doesn’t happen we should consider ourselves lucky. It’s hard to try and get your head around. You’ve got to try and stay optimistic, but my God it’s getting tougher.” Mr Myers said S&P’s latest Bahamas report could be subject to reappraisal very quickly, even “in the next month or two”, and added: “It could be wildly different depending on what happens with the coronavirus.”

He spoke out after S&P, whose analysis appears to have been written prior to Covid-19’s declaration as a pandemic and the implementation of various shutdowns and travel bans, warned that The Bahamas was in danger of being sandwiched by its spread and Hurricane Dorian.

Explaining why it dropped The Bahamas’ outlook from “stable” to “negative”, the rating agency said: “The negative outlook reflects the increasing risk of weaker revenues or higher borrowing costs, resulting in a sustained interest burden in excess of 15 percent of revenues.

“The Bahamas substantial deficits, including hurricane-related spending, are leading to a notable increase in the country’s debt burden in our view. At the same time external risks to the country’s economic growth are rising due to, for instance, the global spread of Covid-19, which could weigh on The Bahamas’ revenues.”

S&P then followed this up by warning bluntly: “The negative outlook reflects that there is at least a one-in-three chance that we could lower the ratings on the country to ‘BB’ from ‘BB+’ over the next 12 months. We believe that slower-than-expected revenue collections and higher spending could cause The Bahamas’ fiscal results to deviate from our base-case expectations.

“We could lower the ratings in the next 12 months if the country’s finances deteriorate from our expectations, leading to interest costs exceeding 15 percent of revenues on a sustained basis. This could result from lower-than-expected revenues, higher borrowing costs or additional debt.

“We could also lower the ratings if continued erosion in fiscal results suggests a deterioration in The Bahamas’ institutional effectiveness in supporting sustainable public finances and economic growth.”

To ward off a downgrade, and ensure a “stable” outlook is returned over the next year, S&P said The Bahamas needed to stabilise the Government’s finances, hit revenue targets and keep the state’s debt burden below 15 percent of its income.

The Government yesterday sought to highlight the positives from S&P’s analysis, completely ignoring the prospect of a further downgrade to its creditworthiness, and instead focusing on the fact that one had been avoided this time together with the credit rating agency’s praise for its institutional reforms.

“The assessment by S&P is not surprising given the conscientious adjustments we made to our original spending and borrowing plans so as to recover from the catastrophic impact of Hurricane Dorian,” K Peter Turnquest, deputy prime minister, said in a statement. “Although these deviations from our fiscal plan will not be permanent, we anticipated they would affect our outlook.

“We are pleased to see that the Government’s various fiscal reform efforts were acknowledged and commended in the report, as they have contributed to the country’s strengthening fiscal institutions and our capacity to deal with substantial external shocks. It is no small accomplishment to weather damages equivalent to one quarter of your annual economic output and still maintain your credit rating.”

“Notably, even though the report foreshadows potential economic fall-out from the coronavirus pandemic, S&P still expressed confidence in the checks and balances put in place to prevent further erosion of our creditworthiness. These included the Government’s demonstrable increase in fiscal transparency and reporting and the focus and progress on institutional reform.”

S&P, noting that the Government’s fiscal ratios have continued to weaken due to persistent annual deficits, said: “The Government’s revised borrowing plans following Hurricane Dorian include almost $1.5bn in additional debt over six years.

“Hurricane-related spending is the largest contributor to the additional debt. However, a portion is also related to ongoing operating and capital needs, highlighting the challenges facing the Government on its path to fiscal sustainability.

“At the same time, economic headwinds have strengthened recently, including increased risks of a US slowdown and the Covid-19 outbreak, which could have negative implications for government revenues given the importance of tourism to the local economy,” S&P added.

“Since our last review, the country’s debt burden has risen above 50 percent of GDP, and will rise above 60 percent when the guaranteed debt of state-owned enterprises (SOEs) is included, putting pressure on our debt assessment.”

S&P estimated that the Government’s and financial sector’s external debt will hit 40.1 percent of current account receipts this year, with The Bahamas’ low per person GDP growth over the past decade “reflecting structural challenges that will be difficult to overcome”.

And, while The Bahamas had attracted a record 7.2m visitors in 2019 despite Dorian devastating Abaco, the credit rating agency said dependency on the US for 80-85 percent of all arrivals remains a vulnerability.

“A US slowdown remains a risk to The Bahamas. An emerging risk to tourism is the coronavirus, which could affect the high-value stayover segment as well as cruise ship arrivals. The country’s economy remains concentrated in tourism and, consequently, is vulnerable to external risks affecting this sector,” S&P said.

That risk is now increasingly emerging. Carnival yesterday said it was halting all voyages by its Princess Cruise line until May 12, a move that will directly impact the Bahamian vendors and staff that work in its Princess Cay destination off Eleuthera.

Hotels, tour operators and excursion providers are also experiencing an ever-growing rate of cancellations as travellers opt to stay at home to avoid the risk of Covid-19 infection and conserve funds amid the rising economic uncertainty.

S&P predicted that the Bahamian economy will shrink in 2020 due to Hurricane Dorian, but the coronavirus’s effects on major tourism source markets and international trade mean that contraction is likely to be deeper than the rating agency thought.