International credit ratings agency Moody’s yesterday changed its outlook of The Bahamas from negative to stable while affirming the country’s Baa3 credit rating.
“The change in outlook to stable reflects Moody’s view that The Bahamas has made important progress in strengthening its fiscal policy framework and transparency through the introduction of fiscal rules and more frequent and in-depth reporting of the fiscal accounts,” Moody’s said in a statement.
“Additionally, Moody’s considers that continued fiscal consolidation will support the stabilization of government debt metrics.
“The affirmation of The Bahamas’ Baa3 ratings considers that, despite increased government debt ratios in recent years, these indicators are in line with those of Baa-rated peers.
“Additionally, while The Bahamas’ credit profile is constrained by its growth potential, high wealth levels enhance the economy’s shock absorption capabilities and measures recently adopted by the authorities will improve The Bahamas’ ability to respond to climate-related shocks, a key underlying credit vulnerability.”
Moody’s noted that, over the years, continued “revisions to budgetary outcomes and the revelation of large arrears undermined fiscal policy credibility and effectiveness, which in turn contributed to a deterioration in The Bahamas’ fiscal position”.
It added that the government passed the Fiscal Responsibility Act, which, among other things, increased reporting requirements.
“The government has begun publishing quarterly budgetary performance reports, as well as its first annual fiscal strategy report, which provides a medium-term assessment of The Bahamas’ fiscal accounts and supports budget preparation efforts,” Moody’s said.
“In Moody’s view, this is a significant improvement with respect to previous reporting practices and demonstrates the authorities’ commitment to adopt international reporting standards for the fiscal accounts. Additional efforts will bolster fiscal policy credibility, including the government’s decision to transition to accrual accounting over the coming years.
“Overall, these measures will strengthen the fiscal policy framework, increase accountability and improve public financial management, enhancing the government’s ability to respond to shocks.”
The agency said it expects the government to continue to reduce the fiscal deficit over the coming years.
“The Bahamas’ debt-to-GDP ratio rose to 58 percent in 2017/18 from 43.9 percent in 2012/13,” the agency said.
“However, Moody’s expects the debt ratio to stabilize, coming in line with the Baa median by 2020.
“Thereafter, contingent on the government’s compliance with the fiscal rules, the debt ratio will start to decline, moving toward the 50 percent of GDP medium-term target.
“In terms of debt affordability, Moody’s expects revenue-enhancing measures implemented by the government to contribute to a decline in The Bahamas’ interest-to-revenue ratio. However, at over 12 percent, the interest burden will continue to exceed the Baa category median of 8.5 percent.”
Moody’s said it would downgrade The Bahamas if it missed fiscal consolidation targets or “if The Bahamas were affected by a climate-related shock and the policy response did not present a credible return to the fiscal rules’ medium-term targets”.
According to the government’s “6-Month Report on Budgetary Performance” the deficit shrank by 31 percent year on year.
As of December 2018, the deficit stood at $174.2 million, compared to $253.9 million in the last period.
The GFS deficit for 2018/2019 is projected at $237 million.
The collection for the first six months is up 14 percent year on year.
The improved performance is largely due to the increase in value-added tax (VAT) and stamp tax, the government said.
VAT was raised by 60 percent, from 7.5 percent to 12 percent, effective July 1, 2018.
The result is VAT collection is up, at $399 million, the data shows.
The government collected $318 million in VAT during the first six months of the previous fiscal year.
The government has projected that it will collect a little over $1 billion in VAT this fiscal year.