Standard & Poor’s plays Grinch to The Bahamas with Christmas Downgrade
The Bahamas has found itself on the “naughty list” of international credit ratings agency Standard & Poor’s (S&P), which delivered the unwanted gift of a major downgrade yesterday.
The country’s creditworthiness is now deemed “junk” as the New York-based ratings firm lowered its sovereign credit rating from BBB-/A-3 to BB+/B.
In a report raising the red flag about the spiraling fiscal deficit, high unemployment and low growth, S&P warned that the country was at risk for a further downgrade.
According to the ratings agency, the Bahamian economy will only grow by 0.3 per cent this year, down from the 1.2 growth projected back in April.
It cautioned: “. . . lower growth trend will challenge the government’s ability to meet its fiscal projections, likely resulting in rising debt.”
It added: “The erosion of the Bahamas’ creditworthiness reflects these growing vulnerabilities within a context of a weak external position with growing levels of external debt, double-digit unemployment, high nonperforming loans in the banking system, and high household indebtedness.”
S&P also justified the downgrade against the backdrop of deteriorating government revenue, despite the introduction of the Value Added Tax (VAT).
The report immediately drew a strong rebuke from the government.
“S&P had turned a blind eye to initiatives currently underway to stimulate economic activity and boost revenue.
“The Government . . . is of the view that S&P’s decision does not give appropriate weight to important developments on the ground, nor the Bahamas’ strong commitment to address its economic and fiscal challenges,” a government statement said.
Pointing to the much anticipated US$3.5 million Baha Mar project, the government added, “The Bahamas’ shortto medium-term prospects for placing the economy on a stronger growth trajectory are more encouraging than they have been since the recent economic and financial crisis.”
Financial analysts warn that the downgrade would likely result in government paying more to service its debt, among other things.
Opposition Leader Loretta Turner-Butler is also expecting negative fallout. She said the report was evidence that the economic policies of the Perry Christie administration had failed.
“This is not a good Christmas. We’ve obviously gone over that precipice that I’ve been talking about for some time,” she told the Tribune.
Chief executive officer of the Bahamas Chamber of Commerce and the Employers’ Confederation, Edison Summer, described the downgrade as a rude awakening for the country.
“It has to be seen as a real wake up call. It’s not good news for anybody,“he stressed.