The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet minister has affirmed “much work” remains to rebuild sufficient “headroom” for the Government’s finances despite Moody’s confirmation of The Bahamas’ creditworthiness and ‘stable’ outlook.

Michael Halkitis, minister of economic affairs, responding to Tribune Business inquiries via messaged replies said that lowering the $11.5bn national debt and eliminating the annual fiscal deficit remain pressing priorities for the Government given the ever-present threat posed by more frequent and powerful hurricanes.

“My reaction is that we are pleased with the progress that we have made in improving the Government’s finances over the past three years, but we recognise that much work needs to be done to rebuild the fiscal headroom we lost as a result of our response to the pandemic,” he said. “We are mindful of the ever-present threats of natural disaster and this undergirds our commitment to fiscal discipline.”

The Bahamas added more than $3bn to its national debt over the three fiscal years from 2019-2020 to 2021-2022 as a result of its response to both Hurricane Dorian and the COVID-19 pandemic, when the bottom effectively fell out of this country’s tourism-dependent economy overnight. Dorian by itself was estimated to have inflicted a combined $3.4bn in economic damages and losses.

As a result, The Bahamas used up virtually all its borrowing ability for when further emergencies arise. It has, however, been spared a further major hurricane over the past five years since Dorian, which has given the Government breathing room to slash the annual fiscal deficit (to a forecast $70m in the 2024-2025 Budget year) and lay the path for generating the anticipated surplus and rebuilding “headroom”.

Moody’s last week, in its latest update on The Bahamas, praised the Government’s “effective fiscal management” in slashing its annual deficits but cast doubts over whether it will hit its 25 percent revenue-to-GDP ratio target and achieve the Budget surpluses anticipated.

The credit rating agency, which maintained a ‘B1’ rating on The Bahamas’ sovereign along with a ‘stable’ outlook, thus indicating this nation is unlikely to suffer a further downgrade to its creditworthiness over the next 12 months, backed the Davis administration’s forecast that it is on target to deliver a “steady fiscal surplus” from 2025-2026 onwards.

If achieved, that would ensure The Bahamas enjoys its first annual Budget surplus, meaning the Government’s total revenues exceed its spending, since Independence some 51 years ago. However, Moody’s, while not explicitly saying so, appeared to differ with both the magnitude of the surplus that will be achieved as well as the Government’s prospects of hitting its revenue-to-GDP target.

For the credit rating agency is forecasting that this “steady surplus” will be equivalent to 0.8 percent of Bahamian gross domestic product (GDP), or economic output. However, the Government’s Budget surplus projections for 2025-2026 and 2026-2027 - as unveiled in this year’s Budget - call for surpluses equal to 2.8 percent of GDP at $448.2m and $457.8m, respectively.

Moody’s 0.8 percent forecast estimates a more modest, but still noteworthy, surplus of around $128m for both those fiscal years - a figure that is less than one-third of what the Government is projecting. And, while it, too, is predicting that revenues will exceed expenditure, it added that the Government’s revenues as a percentage of GDP will “stabilise” at 22.2 percent over the next four years.

If accurate, that would leave the Government short of the 25 percent revenue-to-GDP target it is aiming to hit in the 2025-2026 fiscal year. Meanwhile, Kwasi Thompson, the Opposition’s finance spokesman, again accused the Government of failing to both “adequately address the high cost of living and low economic growth in The Bahamas”.

“Bahamians are struggling to afford basic necessities, while the Government’s policies have failed to deliver the promised prosperity,” the east Grand Bahama MP argued. “We point to a recent Moody’s report which we believe suggests that the appearance of stability is an illusion.

“The Moody’s report indicates that inflation in The Bahamas is projected at 2.8 percent for 2024. The persistent and stubbornly high cost of goods and services has continued to impact the purchasing power of Bahamians, particularly those with fixed incomes. The Government has done little to mitigate the high cost of living....

“The Opposition urges the Government to take immediate action to alleviate the economic burden on the Bahamian. The Government must prioritise policies that will mitigate inflation and the rising cost of essential goods and services, providing immediate relief to struggling families.”

Turning to fiscal policy, Mr Thompson added: “The Government must prioritise reducing the debt burden by implementing responsible fiscal policies and ensuring transparency in government spending to restore public trust and confidence in the management of the economy. Moody’s suggests that The ‘Bahamas’ fiscal strength is constrained by a narrow revenue base, which contributes to weak debt affordability metrics’.

“This directly contradicts the Government’s narrative of a strong and resilient economy. We continue to demand that the Government must do more to encourage and incentivise the private sector to diversify the economy. In fact, the Government according to Moody’s report anticipates increasing fees and service charges.

“The Bahamas must develop and implement a comprehensive economic long-term growth strategy. The Bahamas also needs a clear, long-term plan to foster sustainable economic growth and job creation. We again call on the Government to take concrete steps to address the cost of living crisis and put the country on a path to long-term sustainable economic growth.”