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S&P Raises Bahamas’ Short-Term Rating

Rating agency Standard & Poor’s (S&P) has raised its short-term foreign currency rating on The Bahamas one notch to ‘A-2’ from ‘A-3,’ citing a change in criteria.

S&P stressed, however, that the change does not reflect an improvement of the country’s short-term creditworthiness.

The ratings agency affirmed its ‘BBB’ long-term issuer ratings.

The outlook, meantime, remains stable, reflecting a projected gradual tightening of the government’s fiscal stance over the next several years as growth turns positive, as well as generally stable external financing.

“The change in the short-term foreign currency rating to ‘A-2’ from ‘A-3’ results from the revision of Standard & Poor’s criteria on the linkage between long-term and short-term ratings for sovereigns. According to the criteria, the short-term rating on a sovereign is derived uniquely from the long-term rating on the sovereign by applying a linkage that is consistent with that applied to corporate entities,” a statement from S&P said.

“As a result, the change in the short-term foreign currency rating on The Bahamas does not reflect an improvement in the sovereign’s short-term creditworthiness.”

The Bahamas’ track record of political and macroeconomic stability has delivered high per capita GDP, estimated at almost $23,000 in 2011.

However, the Bahamian economy is vulnerable to the country’s dependence on one sector.

Tourism accounts for more than 50 per cent of GDP and employs more than 50 per cent of labour force and one geographic market. U.S. tourists account for more than 80 per cent of total visitors.

“We expect growth of 2.5 per cent in 2012 and 2013 as tourism-related construction supports growth, despite a sluggish outlook for the U.S. economy,” S&P said.

“The government’s fiscal profile has deteriorated during the past several years, but we project debt to rise more slowly as deficits decrease. We project net general government debt to continue to gradually rise toward 40 per cent of GDP in 2012-2013 from 30 per cent in 2009. Gross general government debt is higher, rising to more than 50 per cent, though with a favourable debt composition – 80 per cent of debt is locally issued and held by residents.”

S&P said although The Bahamas’ external financing gap is high and has fluctuated between 130 per cent and 140 per cent in the last five years.

“We expect it to be about 140 per cent in 2012,” the credit rating agency said.

“Importantly, the government’s external amortization needs are low, and the banking system’s non-resident depositor base remains stable. In addition, we don’t expect that the debt restructuring for Kerzner International, which owns the Atlantis resort, will affect the resort operations and the balance of payments.”

As for the country’s outlook, S&P said it is stable.

“The stable outlook balances the risks associated with The Bahamas’ higher levels of government and external debt with our expectation for lower deficits and a generally stable external financing profile,” S&P said.

The agency said the ratings could come under pressure if The Bahamas’ fiscal deterioration persists and its economic base erodes more severely.

Conversely, the ratings could be raised if the government takes a more proactive policy response to reduce debt or if economic prospects strengthen, more sharply improving the country’s external balance sheet.

Written by Jones Bahamas

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