The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Moody’s yesterday backed forecasts of lower 3 percent economic growth for The Bahamas in 2023 as it noted the Government’s multi-billion refinancing plan almost totally depends on loans and guarantees from multilateral lenders.

The credit rating agency, in its latest update on The Bahamas’ sovereign, unveiled gross domestic product (GDP) growth expectations for the full-year that are in line with those given by John Rolle, the Central Bank of The Bahamas governor, at his last quarterly economic briefing in early August.

Mr Rolle at that time trimmed his prediction to “the 3 percent range” as he warned The Bahamas is poised to next year “resettle” back into traditionally-lower expansion rates. “The Central Bank still projects some recovery-laced, above average real GDP growth in the 3 percent range for 2023. However, potential annual growth beyond 2023 is resettling closer to the two percent range,” he warned.

Moody’s concurred in yesterday’s note, saying: “Because of the rebound in tourism, The Bahamas recorded very strong growth when its borders reopened in 2021. Real GDP expanded 17 percent in 2021, followed by 7 percent in 2022. We expect growth to moderate to 3 percent in 2023, which is still above the country’s growth potential.”

The credit rating agency also appears to be projecting that Bahamian economic growth will endure at slightly above-average levels in 2024, forecasting that GDP will expand by 2.5 percent, which provides a slightly more optimistic outlook for the near-term. It also maintained The Bahamas’ sovereign credit rating at ‘B1’ with a ‘stable’ outlook, the latter indicating “balanced risks” on whether the country’s creditworthiness is improved or further downgraded.

Elsewhere, Moody’s agreed that the Government’s plans to refinance almost $2.2bn in maturing debt at relatively low interest rates during the 2023-2024 fiscal year almost completely depend on loans and other financial assistance from the Inter-American Development Bank (IDB) and other multilateral lenders. It added, though, that the sinking funds created to amass monies to repay future external foreign currency bond maturities are forecast to contain around $300m.

“The Ministry of Finance outlined its financing sources and needs for fiscal 2024 in its annual borrowing plan. Gross borrowing requirements will remain high in fiscal 2024, at 15.2 percent of GDP, according to the Ministry of Finance. Although this is higher than in fiscal 2023, the Government’s net fiscal financing needs are declining because of a narrowing fiscal deficit,” Moody’s said.

“The Government expects to limit its need to access international bond markets, instead relying on multilateral funding and external loans to meet its gross external financing needs. Most of the Government’s $876m in external repayments are due to commercial creditors, $300m to bondholders and an additional $373m due on commercial loans.

“The annual borrowing plan identifies $210m in funding from international financial institutions in the form of policy loans,” Moody’s added. “The Government also intends to use partial credit guarantees from multilateral institutions to attract financing from commercial banks on more favourable terms than without a partial guarantee. In 2022, the Government raised funding through a bond issuance, which includes a guarantee from the Inter-American Development Bank.

“A narrowing fiscal deficit, which can be financed through domestic sources, provides the Government with financing flexibility to meet its upcoming external amortisations. The Government has established a sinking fund, with around $300m based on budgeted contributions in fiscal 2023, and around $260m as of June 2022, to retire maturing external debt.

“As the cost of borrowing in international bond markets remains expensive, the ability to refinance upcoming external amortisations without a deterioration in debt affordability rests on the Government’s ability to attract sufficient financing by leveraging multilateral funding.”

This is well understood by the Government. Simon Wilson, the Ministry of Finance’s financial secretary, previously told this newspaper that the Government’s bid to raise almost one-third of its near-$2.2bn gross financing needs for the 2023-2024 fiscal year from external banks is “looking very favourable”.

He added that talks to secure some $700m in external (foreign currency) debt financing from a number of unnamed banks were “very advanced” as the Government again seeks to avoid the high interest rates that will inevitably be demanded on any international bond issue.

The Davis administration’s 2023-2024 borrowing plan is aiming to raise $995.9m or 45.3 percent of its total gross financing needs for the next fiscal year from external or foreign sources. Of that $995.9m, some $700m - representing 31.8 percent of the $2.199bn total - will come from commercial banks, with the remaining $295.9m provided by multilateral lenders such as the IDB.

“External loan financing includes opportunities for new international financial institution-related policy loans estimated at $210m, which will help to mitigate the risk in the debt portfolio through their typically longer maturity structures and comparatively lower financing costs relative to commercial borrowings,” the plan said of credit provided by the likes of the IDB and Caribbean Development Bank (CDB).

“The Government also intends to pursue policy-linked partial-credit guarantees that will help to secure commercial loan facilities in larger quantum and at a reduced cost. The Government is in active discussions with international financial institutions and commercial banks regarding these transactions.”

Moody’s, meanwhile, noted that tourism’s “resurgence” continues to drive The Bahamas’ post-COVID recovery. “After seeing 1.45m stayover tourist arrivals in 2022, stayover arrivals through the first seven months of 2023 have increased by 30 percent year-over-year,” it said. “Revenue per visitor and a longer average length of stay have also contributed to stronger revenue generated from tourism.

“Beyond stayover arrivals, The Bahamas has also experienced a very strong recovery in cruise visitors. Cruise tourism lagged the recovery in stayover tourist arrivals, but has since exceeded 2019 levels. The expansion of the port in Nassau, which opened in May, has contributed to an increased capacity for visitors, while the country also benefits from its close geographic location to the US.

“Tourism is the main driver of the economy in The Bahamas. According to a report by Tourism Economics, tourism contributed directly to 18.4 percent of GDP and 33.1 percent of employment in 2019. Including the indirect and induced economic impact, tourism accounted for 38.2 percent of GDP and 51.5 percent of employment.”