DPM on S&P downgrade: Govt has accelerated reforms

Following Moody’s credit downgrade in June, The Bahamas suffered another downgrade yesterday, this time by Standard and Poor’s (S&P), which dropped The Bahamas’ sovereign credit rating from ‘BB’ to ‘BB-’, prompting the Ministry of Finance (MOF) to issue a statement acknowledging the downgrade and contending that tourism receipt declines due to the global COVID-19 pandemic, as well as continued fallout from Hurricane Dorian, were partial influences of S&P’s decision.

Deputy Prime Minister and Minister of Finance Peter Turnquest said in the government’s response to the downgrade that S&P also took into account the government’s “larger than expected” deviations from fiscal targets.

But while S&P did focus on these points, it pointed to the country’s historical, systemic, high debt ratios. 

“A high debt burden limits the country’s fiscal flexibility, while the currency regime limits monetary policy flexibility,” the S&P stated.

“We believe the economic impact of the pandemic remains a considerable risk to The Bahamas; consequently, we have maintained our negative outlook.”

This downgrade comes just after the country’s credit worthiness was tested in a round of U.S. dollar borrowing by the government, coming up with a worrying 8.95 percent coupon.

This latest downgrade could stymie more foreign currency borrowing next year, as S&P contends the country will likely seek to borrow $813 million in fiscal year 2021/2022.

Turnquest said in the MOF statement that the government is committed to public finance reform in the midst of the economic fallout from COVID-19.

“We have accelerated our legislative reforms to strengthen the country’s fiscal framework and we are following through on structural reforms in the coming months to significantly strengthen accountability and transparency in fiscal and procurement matters,” Turnquest said in the statement.

“We cannot forget that the Bahamian economy is experiencing unprecedented shocks from two catastrophic external events. Nevertheless, we remain confident in the economy’s ability to rebound and our commitment to restoring fiscal balance over time.” 

He said it remains to be seen how deep and prolonged the country’s economic crisis will be, adding that the “government is taking proactive and prudent steps to meet its obligations and to plan for the recovery”, 

While the MOF statement cited the proposals by the Economic Recovery Committee that the government hopes will offer a boost to the economy, critics of the initial report fear the proposed reforms and recommendations will take too long to take root.

“The negative outlook reflects our view that there is at least a one-in-three chance that we could lower the ratings on The Bahamas over the next year if the economic recovery in 2021 is weaker, or more prolonged, than our base case due to challenges related to COVID-19 containment measures or a longer-term fall in tourism,” the credit rating agency noted.

“If such a scenario were to result in prolonged fiscal deficits at current levels, or a weakened ability to obtain funding, we could lower the ratings. In addition, we could lower the ratings if the government’s efforts to address weak public finances prove to be ineffective or untimely.

“Alternatively, we could revise the outlook to stable over the next 12 months if risks of a more severe or prolonged outbreak were to subside and the country’s economy and finances stabilized in line with our forecast.

“Although successive administrations have identified the need to reform the country’s finances, reforms have been slow and failed to eliminate fiscal deficits. The failure to implement timely fiscal reform and strengthen public sector finances has meant the country has limited liquid financial assets to deploy during the pandemic; at the same time, The Bahamas faces financing risks as it seeks to fund large pandemic-related fiscal deficits and refinance existing debt.

“We have lowered our institutional assessment of The Bahamas due to the political challenge of addressing shortcomings in public finances in an uncertain economic climate over the next one to two years.”

The MOF statement explains that government intends to stick to its plan to promote greater efficiencies and cut costs by reforming state-owned enterprises, which eat up more than $400 million of the country’s national budget.  

The statement added, “Government is making strategic outlays to respond to this crisis in areas that can make the largest impact on the welfare of people: unemployment assistance, social support and small business assistance.”

The post DPM on S&P downgrade: Govt has accelerated reforms appeared first on The Nassau Guardian.

source https://thenassauguardian.com/dpm-on-sp-downgrade-govt-has-accelerated-reforms/