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S&P lowers credit rating as a result of COVID-19 fallout

Credit ratings agency Standard and Poor’s (S&P) announced yesterday that it has lowered The Bahamas’ sovereign credit rating from BB+ to BB as a result of the country’s economic fallout from the novel coronavirus (COVID-19), while also downgrading the country’s transfer and convertibility assessment one notch.

S&P added in its assessment that it expects The Bahamas to experience a strong economic recovery in 2021.

It noted in its evaluation that since its review of The Bahamas in March, COVID-19 has had a “material effect” on tourism, exacting a major impact on government finances “which were already vulnerable following Hurricane Dorian”.

S&P said the negative outlook given to the country reflects the uncertainty related to the duration of the COVID-19 pandemic.

“On April 16, 2020, S&P Global Ratings lowered its long-term foreign and local currency sovereign credit rating on the Commonwealth of The Bahamas to ‘BB’ from ‘BB+’,” S&P noted.

“At the same time, S&P Global Ratings revised down its transfer and convertibility assessment to ‘BB+’ from ‘BBB-’. The outlook is negative.

“The negative outlook reflects our view that there is at least a one-in-three chance that we could lower the ratings on The Bahamas over the next year if the strong economic recovery that we expect in 2021 is weaker, or more prolonged, than our base case, due to a failure of COVID-19 containment measures or a longer-term fall in tourism.”

The Ministry of Finance released a statement yesterday in which Deputy Prime Minister and Minister of Finance Peter Turnquest called the country’s economic position unfortunate, but not unlike other countries around the world battling COVID-19.

“This is an unfortunate position we find ourselves in, but it is similar to virtually every other country in the world,” Turnquest said.

“Our focus is on containing the spread of the virus, mitigating the economic fallout and planning for a strong recovery.

“There will be difficult decisions to make on the road ahead and there are many reform efforts that need to be accelerated to ensure we have a realistic and sustainable response, but this administration is prepared to take those actions.” 

Turnquest said the government is confident in the country’s ability to bounce back from the economic fallout caused by the global pandemic.

“We note the significance placed on the strength of our recovery for future assessments, and we feel confident in our track record,” he said. “The hallmark of this administration has always been fiscal propriety and fiscal order. Even though we will see a significant departure from our fiscal consolidation efforts to respond to this unparalleled event in the economic life of The Bahamas, the government will respond to the current crisis with due regard for the country’s long-term fiscal stability.

“We will continue to implement the measures necessary to support the country’s public health needs and to protect the social and economic welfare of the Bahamian people.

“Further, we are in the thick of the budget planning process for the new fiscal year. We are consulting with a full range of private sector and civil society stakeholders on the proposed fiscal and economic measures. We are being proactive with our planning to ensure we do as much as we can to mitigate the impact of the economic fallout and to set the stage for a strong and sustained recovery.” 

S&P predicts that the country’s gross domestic product (GDP) will decline 16 percent this year due to the virus. It also contends that the effects of the fallout from the pandemic will be temporary.

“We expect a strong – although not full – economic recovery in The Bahamas in 2021,” S&P stated.

“Although we believe it will take several years for nominal GDP to reach pre-pandemic levels, we expect the country will benefit from its strong marketing presence and easy access for visitors.” 

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