The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

International credit rating agencies have set “almost a true north” for The Bahamas to reach when it comes to key economic and fiscal reforms, a governance reformer argued yesterday.

Hubert Edwards, head of the Organisation for Responsible Governance’s (ORG) economic development committee, told Tribune Business that both Standard & Poor’s (S&P) and Moody’s had set out similar policy prescriptions for The Bahamas to follow in their recent country assessments.

While Moody’s 2023 economic growth projection for The Bahamas was higher, standing at 3 percent compared to S&P’s more conservative 1.8 percent, he added that the “messaging” from the two reports should “guide and form the core of any adjusted approach by the administration” as the new legislative session of Parliament opens today.

“Save for the projected growth rate of 3 percent in 2023-24 and 2.5 percent in 2024-25, the credit report on The Bahamas released recently from Moody’s is in many ways identical to the positions taken by S&P with a few more granular insights. The path forward hinges on effective reform, debt management and economic growth. Policymakers should therefore pay close attention to the very rich insights provided,” Mr Edwards argued.

Pointing out that Moody’s decision to maintain a ‘stable’ outlook on The Bahamas’ creditworthiness is positive, he added: “It is also important to contextualise the outlook against the backdrop that there was a clear consensus that, by this point the, reconsolidation would have started to wane.

“The country has so far defied this on the strength of the performance of the tourism industry. There is evidence that additional tourism growth could continue to emerge well into the second quarter of 2024. Maintenance, therefore, of a ‘stable’ outlook, having regard for well-known pressures, continues to be a major positive. Effective strategies and initiatives should be continued and enhanced where necessary.

“Unlike the previous cycle of reports, the two entities are displaying a greater level of agreement on the fundamentals of the economy and appear to have great congruency in their outlook for improvements. Fundamentally, the path to improved economic realities for The Bahamas lies firmly in the ability to solve the challenges imposed by its current debt stock, high interest cost burden, high rollover risk profile and low growth potential,” Mr Edwards continued.

“These two reports, I believe, provide a sound basis for the crafting or furtherance of effective fiscal and economic policies designed to secure a more robust growth environment starting with the reforms highlighted in both. Failure to move urgently in this direction will adversely impact the country....

“The overall economic and fiscal strength, and economic resilience, of the country are low with fiscal strength performing weaker than peers. The country’s biggest challenges remain government liquidity potential in the face of a relatively high debt burden and interest cost. Policymakers must address these with a level of seriousness that presupposes a change in the way the national narrative is prosecuted across partisan divides.

“The fate of the country’s finances lies in securing broad-based changes, and reforms, and addressing the known structural deficiencies that impact the economic growth potential of the country. The Government should benchmark the efforts to-date that have caused the country to secure two pronouncements of a ‘stable’ outlook against what will be required to shift to a positive trajectory, and allow its policy deliberation, determination and execution to be guided accordingly.”

Moody’s, in its assessment, said: “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.”