The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A top Ministry of Finance official yesterday rejected an international rating agency’s concerns that the government may not be able to finance its massive borrowing needs for the 2021-2022 fiscal year.

Marlon Johnson, pictured, the acting financial secretary, told Tribune Business that the government did “not share” Moody’s concerns that it may be unable to access sufficient debt financing to cover a projected $900m deficit in its next fiscal year.

“We believe that we’re comfortable, and we’ve said that we have sufficient headroom and capacity to finance it. We don’t share that particular concern at this stage, no,” he told this newspaper.

Mr Johnson spoke out after Moody’s, in its January 26 credit opinion on The Bahamas, said: “There is also a risk that the market sentiment toward The Bahamas may not improve enough to enable the Government to finance its larger funding needs over 2021-2022.

“Although its favourable debt maturity profile mitigates some risks related to government liquidity (the next global bond is not due until 2024), the country’s limited market access could create external liquidity strain.”

Moody’s, though, did acknowledge that the Government had raised $825m from the international capital markets late last year, with the final $225m attracting a lower interest coupon than the first $600m placement.

However, it added: “The cost, at almost 9 percent, was high and will weigh on the Bahamas’ debt affordability ratios.” And Moody’s did acknowledge that The Bahamas financing its borrowing needs this fiscal year could result in it upgrading its outlook on this nation from ‘negative’ to ‘stable’.

“The outlook could be changed to stable if the Government were to successfully finance its larger borrowing requirements for the fiscal year that will end in June 2021 (fiscal 2020-21), and a recovery of the tourism sector supports growth and budgetary revenue,” Moody’s said.

“Additionally, the implementation of fiscal and economic policies that support a fiscal consolidation process and the stabilisation of the debt trend over the coming years would be credit positive.”

The credit rating agency, noting that tourism arrivals to The Bahamas for the 11 months to end-November 2020 were less than 2m compared to the prior year’s 7m-plus, added that it had also abandoned prior forecasts for a ‘v-shaped’ economic recovery.

It has revised The Bahamas’ GDP growth projection for 2021 from around 12 percent to 4 percent, albeit the latter is still double that forecast by the International Monetary Fund (IMF). Moody’s, though, is predicting 6 percent GDP growth for 2022, which is slightly higher than its previous estimate of under 5 percent.

“Tourism did not recover in the last quarter of 2020. The significant decline in tourist arrivals, coupled with the high number of COVID cases in the US - The Bahamas’ main source of tourists - has led us to revise our previous expectation that tourist flows would recover in the 2021 first half,” Moody’s said.

“We now expect the economic rebound in 2021 to be lower and GDP growth in 2022 to be higher than our previous forecast. This expectation relies on the assumption that tourism will not increase materially until the 2021 second half as vaccination efforts bring the pandemic under control in the US and restore the appetite for international travel.”

On the fiscal side, Moody’s added: “The substantial drop in revenue, coupled with an expectation of slower economic recovery, has led the authorities to revise their fiscal targets compared with those laid out in the budget presented in May 2020.

“The authorities have widened the target deficits for the next three fiscal years, and announced increased expenditure restraints, with a specific focus on state-owned enterprises, which have long received support from the central government.”

Moody’s continued: “The poor first quarter revenue of fiscal year 2020-2021, and the delayed pick-up in tourism, have also led us to widen our deficit forecasts.... Overall, our forecasts do not greatly differ from those of the Government. We expect the fiscal deficit to reach 11 percent [of GDP] in fiscal 2020-21 and to only narrow significantly in fiscal 2022-2023.

“The increased deficit and slower economic growth also mean that we now expect debt to stabilise at more than 80 percent of GDP by 2022. This will place the Bahamas’ debt burden at a higher level than its peers as we expect the ‘Ba’ median to average 70 percent over 2021-2022.”