NASSAU, The Bahamas, Friday July 14, 2017 – International credit rating agency Moody’s Investors Service has threatened to lower The Bahamas’ Baa3 credit rating on the heels of a grim economic report delivered by the Hubert Minnis administration.
The government warned in the recent budget that the country’s weak fiscal position had been underestimated, and it forecast that the government’s debt ratio would worsen over the coming years.
Moody’s, which had projected The Bahamas’ debt ratios would have stabilized this year, said it has little choice but to rethink its position.
“Moody’s review will focus on evaluating the credit risks posed by ongoing economic and fiscal challenges, taking into consideration the recent revelations of fiscal deterioration as well as the new government’s proposals to arrest this deterioration,” the rating agency said in a statement.
It warned that it would downgrade The Bahamas’ credit rating if it were to find that the “government debt ratios were likely to rise to levels that would erode its fiscal strength.”
If Moody’s follow through, it would be the country’s second drop to “junk” status within eight months.
The ratings agency made it clear that the government had to make an effort to regain trust and credibility in the accuracy of its budgetary and fiscal projections.
Deputy Prime Minister and Finance Minister Peter Turnquest told the country back in May that while the former Progressive Liberal Party government had projected a deficit of $100 million, the actual figure was in the order of $500 million.
“Consequently, the new government now expects the deficit in fiscal 2017 to reach $500 million (5.5 percent of GDP). This contrast with the PLP mid-year performance report presented in March, which estimated a deficit of $350 million (3.8 per cent of GDP), and an estimated deficit of $100 million (1.1 per cent of GDP) in the original fiscal 2017 budget,” he had said.
Turnquest said the government would have to borrow $722 million to cover the deficit and to finance its operations this fiscal year.
In response to the downgrade threat, the Finance Minister said the action by Moody’s only reinforced the government’s belief “that we are correct in our conclusion that meaningful reform is needed now – not next year or some other future date”.
“In this respect, I can assure the Bahamian people and the international community that appropriate action to restore the country to fiscal health is now being taken,” he said.
Turnquest laid the blame for the current state of affairs on the previous Perry Christie administration, saying it had five consecutive years of missed fiscal targets and was not transparent and honest with the country about the country’s fiscal health.
“If the previous administration had been more transparent, more honest and more responsible, the country would not have been facing these challenges,” he said.