The Bahamas is nowhere near debt levels that warrant concerns over a sovereign debt default, the Ministry of Finance (MOF) said in a statement on Friday, responding to claims made on Thursday by Caribbean economist Marla Dukharan that this country could default next year.
The MOF called Dukharan’s outlook for this country “alarmist” and stated that it is confident the government’s decision to bolster external reserves through foreign currency borrowing, expenditure restraint, the reform of state-owned enterprises and a number of strong commercial investment projects bode well for the near-term health of the country’s economy.
Those fiscal measures, coupled with the
optimistic outlook on the return of the tourism industry, are cited by the MOF as reasons Dukharan’s grim economic prediction will be warded off.
“Claims about the potential and likelihood of a sovereign debt default as was reported today (Friday) in one of the newspapers of record are unreasonably alarmist,” the MOF statement noted.
“Some countries in the region have debt levels of 100 percent of GDP and beyond. The Bahamas is nowhere near that level, even though its debt level ratios have increased because of the pandemic.
“The government has confidence that the economy will rebound and is seeking to ensure that this rebound is resilient and durable. In keeping with the Resilient Bahamas budget plan, the government is practicing expenditure restraint wherever possible and has indicated its willingness to take measures to protect the country’s fiscal health. These measures range from addressing the reform of state-owned enterprises to release fiscal space to cover other priority needs of the government; to bringing more efficiency in the delivery of government services and processes; to reducing waste in expenditures and ensuring efficiency in revenue administration and the adequacy of our tax system to support the operations of the government.
“Regarding the country’s external reserves, these have been bolstered by the government’s borrowing activity by design. Given the uncertainty, the government took the strategic decision to adjust the typical local-to-foreign borrowing ratios this fiscal year and finance the deficit largely through foreign debt.
“While the country is not out of the woods yet, the economy is not in the danger zone. The government will continue to be guided by fiscal prudence and do what it can and must to safeguard the country’s fiscal health and its reputation as a stable and desirable jurisdiction for investment.”
Dukharan voiced her sovereign debt default prediction on Thursday, during Royal Fidelity’s Investor Forum 2020.
She posited that The Bahamas’ historically high fiscal deficit could be more acute than was previously predicted.
“I, personally, believe there might be a sovereign debt default by next year and that means that there will be difficulty to meet foreign currency obligations, including sovereign debt and perhaps there would then be a situation where the government of The Bahamas would have to go to the IMF to ask for support,” said Dukharan.
Illustrating the importance of the tourism sector and depth of foreign currency leakages, Dukharan explained that since 2014, the country has collected $15 billion in net travel receipts and only generated $1 billion in foreign exchange reserves.
She said while the country’s external reserves have strengthened, the numbers, as have been cited by The Central Bank of The Bahamas, are as robust as they are due to recent US dollar borrowing by the government.
“If it weren’t for all of this borrowing, reserves would have actually declined and so, we do have a serious problem here,” said Dukharan.
The MOF noted in its statement that while The Bahamas’ exposure to the economic shock caused by the COVID-19 pandemic is high, especially due to the country’s heavy reliance on tourism to support foreign reserves, the tourism model is still viable and will continue to offer short- and long-term economic support.
“This tourism model has brought with it strong foreign and local investment activity, through the creation of hotels and other facilities, which offers both important short- and long-term employment opportunities and serves as a catalyst to other high-value activities, such as the second home market and linkages with the financial services sector,” the statement pointed out.
“Indeed, there remains an active pipeline of ongoing significant domestic and foreign commercial investment projects, which support a strong and sustained economic recovery as we emerge from the pandemic.
“Due to the devastating impact of the coronavirus pandemic, all countries around the world, including The Bahamas, have found themselves faced with challenging macroeconomic conditions, where uncertainty is the order of the day. Yet, even in these less than desirable circumstances, The Bahamas has been responsive in its efforts to contain the impact of this shock and continues to demonstrate its undeterred focus on maintaining the stability and credibility of its fiscal stance.”
The Central Bank of The Bahamas also released a statement dispelling the default concerns heralded by Dukharan.
The post Govt rejects economist’s debt default prediction appeared first on The Nassau Guardian.
source https://thenassauguardian.com/govt-rejects-economists-debt-default-prediction/
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