Monday, August 28, 2017
Monday, August 28, 2017
Moody’s Investor Services has confirmed The Bahamas’ Baa3 credit rating—after initiating a review for downgrade on 6 July, 2017. Moody’s also left unchanged most of the risk ceilings for The Bahamas’ long-term and short-term financial obligations.
In justifying its decision, the rating agency highlighted the positive prospects of the government’s fiscal consolidation programme for debt stabilization; consistency in The Bahamas’ credit profile with other Baa3 rated-peers; and the limited liquidity pressures, despite higher borrowing requirements.
However, Moody’s move to change the outlook from stable to negative, reflects its assumptions about the potential downside risks to the implementation of the fiscal consolidation process posed by a less favourable growth outcome and any climate-related shocks.
In a response released August 25, the Ministry of Finance said:
“Moody’s decision, while not surprising, is an endorsement of the Government’s plans to deliver on its fiscal consolidation initiatives and eliminate any perceived risks to investor confidence.
“As emphasized in the 2017/18 Budget Communication, fiscal stability and economic growth are top priorities for the government, and Moody’s has been advised of the government’s willingness to pursue credit-positive fiscal initiatives and growth-promoting policies to extricate the Bahamian economy out of the low growth cycle.
“Through a judicious public expenditure review exercise, the government is intent on achieving, at least, a ten percent (10 per cent) reduction in expenditures—using a combination of approaches such as programme rationalization, where objectives are not aligned with policy priorities or producing the desired results; administrative policy adjustments, project deferrals and improvement in the procurement process.
“More medium-term spending control initiatives under consideration are the use of public private partnerships and efficiency improvements within the state-owned enterprises.
“The government is also resolved to bringing greater accountability, transparency and sound fiscal management principles to bear on the country’s finances. Improvements in fiscal management and policy outcomes are being promoted through the planned introduction of Fiscal Responsibility legislation, which will target, inter alia, the achievement of an annual GFS balanced budget deficit that would allow for a more sustainable evolution of the debt to GDP ratio. IMF Technical resources are already on board to assist the Government in ensuring a well-designed legislative and operational framework, which should be finalized prior to the next budget year. Tangential to this, work is progressing on the upgrades to the public expenditure management system, critical to achieving a credible implementation of the procedural and rules-based reporting requirements of the Fiscal Responsibility legislation.
“In the area of revenue administration, work is continuing to improve compliance as a means of protecting yields, and promoting tax efficiency and fairness. These efforts include measures to improve the coverage with respect to property tax assessments and proper and timely filings relative to VAT and business licence returns.
“The government is optimistic that economic growth prospects will gain more traction as the fiscal year progresses. Specific proposals aimed at securing greater economic diversification are under active review, as are opportunities for improving business facilitation and the investment climate, through addressing issues of competitiveness, including energy reform. Recent improvements in the labour force statistics are encouraging, and further gains are anticipated by year-end, as real sector developments provide additional opportunities for employment.
“The Bahamas has an excellent track record in servicing its debt obligations and, by using the right policy mix, the government is committed to delivering a positive fiscal and economic outcome for the country.”