Analysts at credit rating agency Fitch Ratings were “overzealous” in their contemplation of risks posed to the Nassau Airport Development Company’s credit quality when they included the concern that the country could possibly impose “controls on the transfer of foreign currency” for U.S. notes, Governor of The Central Bank of The Bahamas (CBOB) John Rolle said yesterday.
Last month, Fitch once again relegated NAD’s debt rating to a negative outlook, with no change in its rating score, pointing to the country’s economic risks post-Hurricane Dorian as a limiting factor for the country’s main airport and what the rating agency sees as a country lacking fiscal buffers.
While the Fitch rating for NAD remains at BBB-, its outlook has degraded from stable, which it received in 2018, to negative in the most recent rating report.
But Fitch also included in its reasoning a factor Rolle called “far-fetched”.
The rating agency stated: “The outlook revision reflects concerns with respect to the weakening credit quality of the Bahamian sovereign, particularly the risk of imposing controls on the transfer of foreign currency for the USD denominated notes.”
Rolle explained: “Our position is that we’re not, in The Bahamas, contemplating ever going in the direction where you impose controls on the movement of foreign exchange on projects that have already gone through the process of getting their approvals and sanctioned.
“The entire regime in The Bahamas is focused around making sure that you select and endorse projects that have some viability in terms of foreign exchange access and an airport project is in the heart of your foreign exchange earning activities. So, if a project like that runs into foreign exchange access risk, that says a lot, unfavorably, about what’s going on in your economy in terms of tourism sector performance.
“This is a direct investment in tourism, it will pay for itself.”
Rolle said while Fitch’s concerns about the state of The Bahamas’ economy could be legitimate concerns for them, he contended that this country’s government would not impose restrictions on foreign exchange use or access to foreign exchange for a business trying to service its debt.
“It won’t happen,” he said.
“I think it’s just overzealousness on the part of the analyst in terms of how they look at the various risks in trying to anticipate how policy makers would react. But that is not an approach that countries take in terms of dealing with any sort of economic crisis or shock. Countries have many other internationally accepted ways of managing crises if they encounter a crisis.
“As a matter of fact, our obligations, being members of the International Monetary Fund (IMF), is that you must honor the private sector’s efforts to service debt owed, to move their profits once they’ve earned their profit. That is a legal obligation as a country.”
Fitch explained in its report that The Bahamas’ frequency of hits from hurricanes over the past three years has “deteriorated the fiscal position of the sovereign, leading to an increase of the debt burden”.
Fitch added: “The negative outlook also reflects the lack of fiscal buffers that could contain the fiscal impact in case of a severe weather event.”
This change in the airport’s rating comes on the heels of a landmark travel year for NAD in 2019, even after a falloff in arrivals in September because of Dorian.
However, Fitch outlined developments that could lead to a future positive rating action, including the strengthening of The Bahamas’ credit profile; a sustainable increase in NAD passenger traffic; and the company’s net senior debt to EBITDA (earnings before interest, tax, depreciation and amortization) below 4.0 in a sustained basis.