In the wake of a potential downgrade by International Credit Agency Moody’s to the country’s sovereign credit rating the government is saying that economic growth is still on the horizon.
The Wall Street Investor’s Service provides international financial research on bonds issued by government and commercial entities and ranks the creditworthiness of borrowers using a standardized ratings scale which measures expected investor loss.
Moody’s said that the potential downgrade would put The Bahamas In the “junk” territory for the first time in the country’s history.
As a result, Moody’s expects that the government will have difficulty achieving a meaningful reduction in its debt levels in the near-to-medium term.
In a statement yesterday, the government responded to the ratings in a press release and said despite the negative rating the prospects for the economy are promising.
“The government’s position is that ongoing construction at various projects around the country is generating significant economic activity.
“While the archipelagic nature of The Bahamas at times creates a lag in economic activity in the Family Islands being reflected in official statistics, there is no question that the level of real economic activity in much of the major islands of The Bahamas is much higher than it was three years ago,” officials said.
The government added that remobilization of the stalled mega resort Baha Mar should be a significant boost to the economy, as well as a new team put in place to address the country’s ongoing energy crisis.
“Growth prospects for the Bahamian economy are also very good with the imminent restart of construction at Baha Mar and its subsequent opening. In addition, challenges within the energy sector are being addressed by the new private sector management team at Bahamas Power and Light and the benefits of this will be realized in the short term.
The government added that the implementation of the Value Added Tax has been a vital asset to the economy and that country’s debt has shown a steady decline over the past several years.
“The successful introduction of VAT demonstrates the government’s commitment to its plan. Central to the plan is the modernization and enhancement of revenue administration. This is supported by the creation of a Central Revenue Administration which will lead to increases in the collection of real property tax and business license fees in particular.
“The rate of growth of government debt has declined steadily over the past 3 years and with recent revenue enhancement measures and expenditure control efforts, it is expected that the increase in debt will halt and the level of government debt will begin to decline in absolute terms by 2018/2019.”
Factors for the potential downgrade include the significant run up in government debt levels in recent years, the country’s limited growth prospects and the challenges the government is likely to face in raising revenues.
According to Moody’s in order for the economic outlook to return to a stable level the government would need to implement a credible plan not just for stabilizing the debt situation, but reduce it to a level more consistent with the current A3 rating.