International ratings agency Standard and Poor’s (S&P) has maintained The Bahamas’ sovereign credit rating of BB+/stable/B.
“The stable outlook reflects S&P global ratings’ expectation that robust political institutions will anchor fiscal consolidation and moderate economic growth over the next one to two years,” S&P wrote in a credit opinion released last night.
“We could lower our ratings on The Commonwealth of The Bahamas over this period if public finances do not improve as quickly as expected.
“This could result from stagnant economic growth, external shocks, or weakened political commitment.
“The lack of confidence that this may generate could push debt costs higher, leading to a downgrade.
“Conversely, we could raise the ratings over the same time frame if the government reduces the annual increase in general government debt beyond our expectations.
“This, combined with significantly higher economic growth forecasts, could lead to an upgrade.”
The Bahamas’ national debt stood at almost $8 billion.
S&P added that The Bahamas’ credit rating reflects its high external liquidity needs, rising debt levels and slow growth economy, which lost its competitiveness over the past decade.
“This deterioration has led to weakened public finances and higher debt levels,” S&P said.
“Nevertheless, the country’s strong institutional foundation continues to provide necessary checks and balances that have prevented further erosion to creditworthiness.
“We expect the government to continue to progress toward its fiscal sustainability goals, which should support economic growth.
“Nevertheless, it will take time to reach the government’s target deficit and debt ratios, in our view.
“We believe that stronger tourism activity will bolster economic growth in 2018, following a return to growth in 2017, supported by the opening of Baha Mar. Longer-term growth prospects will depend on success in attracting new investment.”
S&P noted that the opening of Baha Mar dramatically boosted the number of hotel rooms on New Providence.
“This increase in hotel rooms is offset slightly by the closures of hotels elsewhere, notably in Grand Bahama following the 2016 hurricane season,” S&P said.
“While the government has purchased the Grand Lucayan hotel and plans to sell it to another operator quickly, it remains partially closed.
“Nonetheless, we believe new room capacity in New Providence and ongoing tourism projects will lead to slightly higher real GDP growth, averaging 1.4 percent annually, over the next three years.
“However, intensifying regional competition in tourism, exposure to weather-related shocks, high energy costs, still-high nonperforming loans that clog private-sector lending, and high household indebtedness will continue to constrain growth.”
In a statement, the government said it “halted what had become a perpetual cycle of downgrade after downgrade”.
Deputy Prime Minister and Minister of Finance Peter Turnquest said, “Now that the fiscal and economic situation is stabilized, the task remains to maintain fiscal discipline and speed up the pace of economic growth that must be broad and inclusive.
“The S&P report echoed what we have been saying: We must stay the course, for if we waver now, we could undo the progress and diminish the medium to long-term viability of the country.
“This administration takes seriously its core responsibility to be fit and accountable stewards of the fiscal affairs and the long term economic well-being of the nation.”