The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former finance minister yesterday argued that “Moody’s may owe us an apology” over Friday’s downgrade as it could disrupt the new administration’s fiscal plans less than one day after taking office.

James Smith, who held the post during the 2002-2007 Christie administration, told Tribune Business that the timing of the credit rating agency’s action could undermine and tarnish any effort by the Philip Davis-led administration to convince the capital markets, creditors and lenders that ‘a new day’ may have dawned for The Bahamas’ public finances.

“I think the timing of the downgrade, first of all, is somewhat suspicious to allow that pronouncement to take place on the very first day that the change of government is taking place,” he blasted. “It somewhat seems to be an intrusion into our local affairs.

“It could have come two days before. They could have done it then, as they normally do, but it might have affected the election so they thought. It may have, it may not, but Moody’s may owe us an apology quite frankly. Suppose the new administration wanted to approach creditors and say it’s a whole new ball game....”

Moody’s decision to downgrade The Bahamas by a further notch, from ‘Ba2’ to ‘Ba3’, and plunge its debt further into non-investment grade or ‘junk’ territory, came on the afternoon that Philip Davis QC was sworn in as prime minister. The Ministry of Finance, which usually responds to such developments rapidly, made no comment, and the Prime Minister’s spokesman had to find out about the move from this newspaper.

Neither Kwasi Thompson, former minister of state for finance, nor Marlon Johnson, acting financial secretary, could be reached for comment yesterday to determine whether the outgoing government knew the Moody’s action was forthcoming and if it had asked the rating agency to delay until after the election.

Tribune Business uunderstands that the Ministry of Finance likely knew it was coming, but no statement was issued because it got caught up in the transition between administrations. However, Gowon Bowe, Fidelity Bank (Bahamas) chief executive, yesterday argued that getting caught up in “conspiracy” theories over Moody’s was “irrelevant” and a major distraction from the real issues facing The Bahamas.

“I would quickly dispel any conspiracy theories that Moody’s took this position because of the change in administrations, and I would dispel that Moody’s gave the former administration a ‘heads up’ and this is why they called an early election,” Mr Bowe told this newspaper.

“Our fiscal circumstances have not changed from Wednesday to Thursday. The conspiracy theories are esoteric at best and damaging at worst. The reason I say that is in 2020, when Moody’s originally downgraded The Bahamas, if we are objective when we look at our fiscal circumstances one year after to now, have they improved, worsened or remained flat.”

Given that the Government has run a $1.3bn-plus deficit over that period, with the national debt reaching $10.356bn at end-June 2021, Mr Bowe said it was clear that The Bahamas’ economic and fiscal strength had declined to create conditions that justify the downgrade.

Where Mr Bowe and Mr Smith agreed is on the urgent need for The Bahamas to map out a credible, realistic strategy complete with achievable targets that can be measured for how it intends to place the Government’s finances back on a more sustainable path.

“I think most important is the new administration should not waste any time blaming the prior administration,” Mr Bowe told Tribune Business. “We don’t have time right now. The focus should be on satisfying the rating agencies we have a plan going forward. The best way to scold the former administration is to produce a plan and show they’re doing better.....

“The question about how urgent this is? It has been urgent for the past five years. The urgency today has been ratcheted up because the nation is at a level that leaves little room for negotiation. Our negotiation is not for headroom; it’s for restructuring and renegotiation.”

While suggesting that Bahamas-based and foreign investors in government debt had likely priced in the interest rate and foreign exchange implications of Moody’s downgrade, Mr Bowe added that they will likely be “looking deeper” than the credit rating agency and doing their own assessments.

And he warned that the key issue from Moody’s action was its maintenance of a so-called “negative outlook” on The Bahamas, suggesting that another downgrade is highly possible over the next 12 to 24 months. 

Arguing that The Bahamas’ first objective must be to obtain a ‘stable’ outlook with Moody’s and Standard & Poor’s, Mr Bowe said: “They are still not satisfied we have a plan and strategy to turn it around in the short-term.

“That is what we need to have addressed: A stabilised outlook. That’s the one why I say about we’re no longer negotiating based on headroom, but based on reorganisation and restructuring. How do we get them to see it is a stable outlook because they believe there is a strategy and plan, with enough measurables, to demonstrate in whatever time they wish to look at we are moving in the correct direction?”

Mr Smith added: “I think what the new government needs to do is address it immediately, and lay-out a plan over the next five year period of how they intend to address the debt problem in The Bahamas.” He suggested that among the goals should be to try and reduce foreign currency debt by 40-50 percent.