The ratings decision by
Standard & Poor’s although not unexpected, given the recent placement of
The Bahamas on credit watch, does not adequately reflect the improved economic
and fiscal outlook for the Bahamian economy.
It is important to
emphasize however, that The Bahamas maintained its investment grade status.
It is Baha Mar along
with other projects throughout The Bahamas that will make healthy contributions
to the economy over the medium-term. The Government is now awaiting a court
ruling on its request for the appointment of a provisional liquidator, scheduled
for the 4th of September 2015, and remains committed to a timely resolution
that is in the best interest of the country. If the provisional liquidator is
appointed, they are expected to move swiftly to secure completion of the resort
and to address concerns about current delays.
While Standard &
Poor’s has given the Government some credit for its fiscal reform programme, it
should have also affirmed that the achievements are forecasted to cause a
reduction in the debt burden in the near term. The International Monetary Fund
(IMF) in its most recent Article IV Consultation Report has noted that progress
with reforms has outperformed its own expectations. S&P’s projections still
show increase in the debt burden in the immediate years ahead when the Ministry
of Finance’s forecast are for reductions to begin to set in. This outlook continues
to be credible.
The success of the Government’s
fiscal strategy is reflected in its ability to raise funds on more favorable
terms both internationally and domestically. In addition, the Government has
been careful to tie its recent foreign currency borrowings to specific
projects, such as the acquisition of vessels for the Royal Bahamas Defence
Force and airplanes for Bahamasair. In both of these cases the borrowing has
been accessed at very favorable terms.
The Bahamian real
economy has improved, with the latest figures for the May jobs survey showing a
2% drop in the unemployment rate. This would support our view that the real
economy and consumption which is the primary driver of domestic demand have
expanded. The Ministry of Finance is therefore confident that the economy is on
track for recovery, supported by other reforms that will stimulate increased
private sector activity. Indeed, a
strategic framework is being put in place, in partnership with Power Secure, to
tackle the high cost of electricity and progress is imminent on initiatives to
improve domestic credit conditions and boost confidence in the residential
mortgages market.
Again, The Bahamas
continues to make progress on the fiscal front. The Government, while being
patient, will redouble its efforts to sustain improvements in this area, and
advance reforms to bolster private sector confidence over the medium-term.