The Tribune

By KHRISNA RUSSELL

Tribune Chief Reporter

krussell@tribunemedia.net

PRIME Minister Philip “Brave” Davis said a recent downgrade by international rating agency Moody’s was not surprising, as he suggested the former administration did not want the development to go public ahead of last week’s election.

 Moody’s further downgraded The Bahamas’ sovereign credit worthiness on Friday, the day after thousands of Bahamians turned out to the polls and elected the Progressive Liberal Party to steer the country for the next five years.

 Asked about it on Saturday after he was presented his instruments of appointment, Mr Davis said the writing was on the wall.

 “Well, that’s not surprising,” he told reporters. “If anyone has been following the fiscal affairs of this country, they’d know that for quite a while we’ve been heading over a fiscal cliff.

 “In fact, I recall stating that in the 2019 budget even before (Hurricane) Dorian that that’s where we’re headed and so this is not surprising.

“…We suspect that information was had and was in the making for quite a while but was only released (after) Election Day so as not, I think, to impact the results. It didn’t.”

 He was also asked how soon Bahamians could see his party’s election promise to reduce value added tax to 10 percent from the current 12 percent rate.

“As soon as we get in and I decide on our minister of finance and what we’ll do with that, we will very shortly make an announcement on that in the coming weeks,” Mr Davis said.

 Moody’s, in slashing the country’s long-term issuer and senior unsecured ratings to ‘Ba3’ from ‘Ba2’, warned that the devastation inflicted by COVID-19 and Hurricane Dorian will have “lasting consequences” for the Bahamian economy with stopover arrivals only returning to pre-pandemic numbers in 2024.

 This latest action, as reported by Tribune Business, plunged The Bahamas further into non-investment grade or “junk” status, with Moody’s adding that the country’s $10.356bn national debt is now more than six times bigger than the government’s annual income or revenue base.

 The consequence of the latest downgrade includes a further potential increase in the government’s borrowing costs when it goes out to raise hundreds of millions of dollars in more debt financing later this year.

 Investors will likely seek higher interest rates on Bahamian sovereign debt to compensate for the extra risk due to the government’s loss of creditworthiness. This, in turn, will lead to higher debt servicing costs that will ultimately have to be paid by the Bahamian taxpayer.

Tribune Business reported that the timing of Moody’s actions is especially bad given that the government’s 2021-2022 borrowing plan projected it would seek to place a $700m bond with the international capital markets in late September/early October, depending on prevailing conditions.

 The rating agency called a meeting to discuss its impending Bahamas downgrade on September 14, just two days before the general election.

Moody’s, in maintaining a “negative outlook” on The Bahamas, justified the downgrade by saying: “The downgrade to ‘Ba3’ reflects the significant erosion of The Bahamas’ economic and fiscal strength brought on by the coronavirus pandemic.

 “Moody’s expects the gradual recovery in tourism to leave a long-lasting impact on The Bahamas’ credit profile through materially higher debt and interest burdens, which will significantly exceed those of ‘Ba3’-rated peers,” the agency said.

 The rating agency only cut The Bahamas’ sovereign creditworthiness, which measures the government’s ability to pay its debts and bills, by one notch this time having slashed it by two spots in June 2020.