S&P says recession reversing savings trend in Bahamas

NASSAU, Bahamas, Thursday May 31, 2012 – Standard & Poor’s (S&P) has termed the Bahamas national savings rate as “stubbornly low”.

This is in a recent paper issued by the United States-based credit ratings agency that has been looking at the sovereign debt issues of various Caribbean nations, and contrasted the national savings rates in the region with those achieved by emerging Asian economies, some of which had grown theirs to more than 44 per cent of gross domestic product (GDP) by 2007.

Already exhibiting a low national savings rate, the Bahamas fell by a further 5 percentage points during the recession’s peak to just 10 per cent of GDP. S&P cautioned that this trend “may force difficult” fiscal and social security-related decisions upon the Government.

In the S&P report, Caribbean Debt is on the Rise, written by analyst Kelli Bassett, with help from Olga Kalinina and Lisa Schineller, the relatively poor level of domestic savings and investments in the Bahamas was linked to both private (individuals and businesses) and government sector decisions.

The S&P report said: “In response to the economic downturn, some Caribbean societies (both governments and private citizens) have drawn down savings to finance current expenditure or simply saved less as local economies struggle with high unemployment, weak external FDI inflows and low tourism revenues.

“In the Bahamas and Barbados, both of which have social safety nets, gross national savings have fallen. According to the IMF, the Bahamas’ gross national savings fell to an average of 10 per cent over 2008-2011 from an average of 15 per cent of GDP over 2003-2007.”

The Bahamas’ gross national savings rate, S&P added, was below the Caribbean average of 13-20 per cent for the past decade. Describing the latter as “stubbornly low”, the rating agency said developing Asian economies were leaving the Bahamas and its regional counterparts in their wake, growing their national savings rates from an average 31 per cent of GDP in 2000 to more than 44 per cent in 2007.

Assessing the implications of all this, S&P concluded: “The rise of public sector debt in the Caribbean has also been fuelled, at least in part, by low national savings, reliance on external financing for investment, and volatile current account balances.

“Given that the Caribbean’s slow recovery from the economic crisis is now entering its fourth year, the low rates of national savings may force difficult social and political discussions on fiscal sustainability, national welfare and social safety nets as public sector and personal resources come under increasing strain.”

S&P added that the Bahamas’ relatively low national savings rate meant that, as a small, open economy, it was heavily reliant on foreign direct investment and external capital to finance consumption, investment and its current account deficit. This, in turn, placed it among countries most vulnerable to external shocks – such as the global recession. Click here to receive free news bulletins via email from Caribbean360. (View sample)