Moody’s downgrade will not affect govt borrowing, says Johnson

Moody’s most recent downgrade of The Bahamas’ credit rating into the realm of junk will not affect the government’s borrowing or cost of borrowing for the 2020/2021 fiscal year, Acting Financial Secretary Marlon Johnson told reporters yesterday, but it is a clarion call for the government to move back towards a fiscal balance as quickly as possible.

Johnson explained that the government will look to multilateral organizations like the Inter-American Development Bank, Caribbean Development Bank and the World Bank, where the country’s credit rating is not as important as it is to lenders on the open market.

According to Johnson, as part of the country’s membership in those organizations, it is afforded loans with reasonable interest rates and favorable maturity.

“The impact of any credit downgrade is obviously on your borrowing cost and so we had known that Moody’s had already signaled the downgrade to happen, so in our calculations of our borrowing costs we factored in the downgrade,” said Johnson.

“How we moderate that during this fiscal year is we will be relying on the multilateral entities. The borrowing rates are not dependent on the broader market. We are member shareholders in these entities, so we’re able to get interest rates on those loans at a fraction of what we pay on the open market and often a grace period on principle repayment and the repayments are extended over 20 years to 25 years in most cases.”

Johnson said Moody’s assessment of The Bahamas’ economic condition is simply a fiscal responsibility reality check.

Moody’s, which released its assessment of The Bahamas last Thursday, expressed some concern about the country’s ability to continue accessing such large amounts through traditional financiers.

“There is also a risk that market sentiment towards The Bahamas does not improve enough to enable the government to finance its larger funding needs through 2021/2022,” Moody’s stated.

Also a concern for Moody’s was constrained funding conditions for the government “because of larger financing needs”.

“The negative outlook reflects Moody’s expectation that given the severity of the coronavirus shock, the government’s credit profile will continue to be exposed to downside risks related to the recovery of the tourism sector,” Moody’s stated.

“This could weigh on a consolidation process that Moody’s currently expects will begin in earnest in fiscal 2021/2022. Additionally, given its higher borrowing requirements for fiscal 2020/2021, the government could face more pronounced liquidity challenges than currently expected.”

Moody’s lowered The Bahamas’ long-term foreign currency bond ceiling to Baa3 from Baa1 and long-term foreign currency deposit ceiling to Ba3 from Baa3. The short-term foreign currency bond ceiling was lowered to Prime-3 from Prime-2, whereas the short-term foreign currency deposit ceiling was lowered to Not Prime from Prime-3. The long-term local currency country risk ceilings were lowered to A3 from A2.

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