S&P: Further action not expected before elections
On the heels of Barbados taking a downgrade to its outlook from stable to negative, international credit ratings agency representatives tell Guardian Business further credit action for The Bahamas is unlikely prior to the next general election.
Standard & Poor’s (S&P) announced Monday that the international credit ratings agency, while affirming Barbados’ ‘BBB-/A-3’ rating, adjusted its outlook for that Caribbean nation to “negative”. Lisa Schineller, director of sovereign ratings for S&P, told Guardian Business the October 31 ratings for The Bahamas should hold through the general elections, as long as its current expectations for the country hold.
“We just took rating action on The Bahamas and, it’s important to note, we have a stable outlook. In our assessment, we are assuming that the Bahamian fiscal position improves, the deficit declines slowly, and the debt trajectory rises, but at a more moderate pace,” Schineller said.
“We don’t expect taking any measures before the next government, and the forecast is through the next government over the next few years.”
Deviations from S&P’s current assumptions of moderate growth for the economy, a slowing of the growth of government debt levels, and a gradual reduction in the deficit would generate downside-risk to future ratings, Schineller told Guardian Business. On the other hand, a more active stance to improve the fiscal dynamics by the government would likely be favorable to future ratings.
“It’s hard to see that before the election,” she said.
New ratings methodology that places a greater weight on economic diversity and growth prospects had been cited as underlying S&P’s downgrade of The Bahamas from ‘BBB+/A-3’ to ‘BBB/A-2’ at the end of last month. Still, both S&P and competitor Moody’s have been watching rising debt levels here and honing in on the limited opportunities to increase government revenue and grow the economy.
Assistant vice president and analyst at Moody’s, Aaron Freedman, had similar sentiments, saying after its last rating action for The Bahamas in August, it was unlikely for new action before the elections.
“It will take some significant action on the part of the government to at least put together a credible plan of action for turning things around,” Freedman told Guardian Business. “Given the upcoming elections and the potentially controversial actions that such a plan would entail – increasing revenue or cutting expenditure are controversial measures wherever you are – it would be difficult to commit to taking action before the election.”
Moody’s outlooks generally have a 12 to 18 month shelf-life, although extreme circumstances could justify quicker credit actions, Freedman explains.
Barbados’ debt burden was an important element underlying the change in its outlook to negative, according to S&P.
“The negative outlook reflects our view that downside risk to Barbados’ creditworthiness are increasing as the external financial and economic environment weakens,” S&P, credit analyst Olga Kalinina said in a press release.