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Bahamian Politics Last Updated: Feb 13, 2017 - 1:45:37 AM


Turnquest: FNM is disappointed at further downgrade by Standard & Poor’s (S&P)‏
By Peter Turnquest, FNM Deputy Leader
Aug 26, 2015 - 10:43:01 AM

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Following the PLP Government recent claim to have reduced the country’s debt and restored the Country to a period of economic growth, The Free National Movement is disappointed to learn of the further downgrade by Standard & Poor’s (S&P) of the country’s credit risk rating from BBB/A-2 to BBB-/A-3 and its Credit Watch/Outlook from “Watch Negative” to “Negative”, indicating that a further downgrade within the next 6 to 12 months is possible unless the current trends and circumstances affecting the economy are arrested and turned around.

During the recent National Budget Debate, both the Member for East Grand Bahama and the Member for St. Anne’s, cautioned the Government that its growth projections were overly optimistic and placed too much reliance upon one significant investment, that being Baha Mar.

We take no pleasure in making the observation that we were justified in our conservatism, which true to past practice was dismissed as political and negativity. After a series of similar unheeded advice, we hope that finally the Government will get it, that when it comes to the future and stability of the Bahamas, the Opposition has no interest in politics and offers the benefit of years of experience in the financial services industry, financial analysis and understanding of economic trends.

To the ordinary resident, independent sovereign credit risk ratings are confusing and fly in the face of our sovereignty as promoted by our Government, as they seek to stir up emotions where calm intellectual thought is more appropriate. It may be helpful therefore to explain what a credit rating is and why it is important for Bahamians to understand and to pay attention to.

A sovereign credit rating is a general opinion of a countries ability to repay its debts as and when they fall due and considers the risk of investing in a particular country given its assessed political and economic profile. Lower credit ratings result in higher borrowing cost and fewer options because the borrower is deemed to carry a higher risk of default. The lower the credit rating, the more an investor or lender will demand to be compensated for the risk of holding that debt. If the Bahamas is unable to borrow due to the associated cost and assessed risk, then it may default on its debt which then raises a series of additional concerns, not the least of which is the threat of a currency devaluation.

Thankfully, the Bahamas has not reached that status yet but the BBB- credit rating does indicate that while adequate protection exist for lenders to secure their loans to the country, adverse economic conditions or changing circumstances may lead to a weakened capacity to meet its financial commitment as they fall due. In other words, there may be an increased risk for the borrower (Bahamas) to default if the current and projected economic trends and circumstances affecting the economy do not turn around. A BBB- rating is the lowest possible rating before non-investment grade status, where normal sources of sovereign debt funding are not allowed to participate. A negative credit watch indicates that the assessed rating may be further lowered within a stated period.

In its current downgrading, S&P pointed to a number of structural and self-inflicted deficiencies and trends not helped by the government’s arrogant and naive stance towards investors, both foreign and domestic and its slothfulness in identifying innovative strategies to expand the economy.

Our current economic model has some structural deficiencies and threats that inhibit further expansion. For instance, our education model is outdated and does not meet the need of a modern Bahamas. It has come to the point where tinkering around the edges will not fix the problem and repeated reports of failure by successive governments. An aggressive approach, taking into account all aspects or factors affecting the system of education and societal influences must be undertaken. We must increase our capacity to absorb the new and emerging economy and the reality that past practices of just ten years ago will not cut it any longer. Our young people have a desire to participate in this new economy but they are being severely hampered in that quest by a lack of opportunity and capacity of the system to expose them to the knowledge they need to compete aggressively.

Our financial services industry continues to experience pressure from external ratings, regulatory bodies and developed countries. The recent blacklisting by the European countries and the implementation of the provisions of the US FATCA regulations have created an increasing harsh and expensive environment for our offshore industry and further contraction is probable. It will take an increasingly agile and creative financial services sector, backed up by flexible legal practices and enabling legislation in order to protect and diversify the sector.

Tourism has been experiencing anemic growth for years, even as we build new hotels and offer more and more incentives to foreign investors in the sector. As demonstrated by Baha Mar, we have yet to learn the lesson that bigger is not necessarily better and foreign is not necessarily better than Bahamian. Hence, we see the new Pointe Development announced, ironically by the same contractors who failed the Baha Mar project, and other projects announced on other islands, though construction has yet to commence.

It is imperative if we are to begin to develop a more stable and sustainable tourism industry that more Bahamians are introduced to the operational aspect of hotels and tourism products.

We have to increase our depth of involvement and make the product more indigenous if we are to meet the challenge of empower young people and providing a stable platform for them to realize their goals of having more of an economic stake in our country.

We must further look to add to the basic fundamentals of our economy by taking advantage of the technological revolution and the knowledge based economy that it affords. There are any number of possibilities in this sector, however government must ensure that the necessary infrastructure is in place to make it possible. Chief among these is a stable electrical system.

We cannot increase our capacity without reliable, stable and affordable energy. After much talk by this government we must have action on this front. Similarly, telecommunication and digital communication infrastructure must be upgraded and competition introduced to improve service and cost. This are not an option in a modern Bahamas and there is no room for political cronyism and patronage if we are to get the best services for our people.

The FNM encourages this government, that in the last two years of it waning governance, to reject the tired and outdated political hacks of the past, who’s only goal is to keep us stuck in mire and mud, as well as the temptation to abuse its power against those who may have an alternative solution to its policies and modus operandi, and instead focus its collective attention to solving some of the many challenges affecting our nation and the factors contributing to our continued slip in credit, ease of doing business and livability standards ratings. We can do better and we deserve better from our government.

The Free National Movement is committed to a New Vision for the Bahamas, to elevating the political discourse to one centered on a debate of ideas and embracing the diversity of input in our country.


Bahamas Ministry of Finance Comments on Standard & Poor’s Rating Action

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