The government is already taking steps to address the concerns raised by global credit rating agency Standard and Poor’s in its recent credit downgrade report on The Bahamas, Minister of Economic Affairs Michael Halkitis said.
The agency on Friday downgraded the country’s sovereign credit rating to ‘B+’ from ‘BB-’ with a stable outlook, noting a debt burden that has climbed to almost $2.4 billion – 86.6 percent of gross domestic product (GDP) – in the past two fiscal years and successive governments’ failure to implement timely and effective fiscal reforms.
Halkitis said economic recovery and growth are the Davis administration’s first priorities in addressing the debt issue.
“The rating reflects the continued economic and fiscal impact of Hurricane Dorian and COVID-19, as well as the failure of the previous administration to implement meaningful fiscal reforms to existing revenue models and ill-conceived debt management strategies. The imprudent policy choices related to borrowing over the past four years have increased our external indebtedness despite the existing domestic capacity. The Davis administration understands the urgency of this matter and the need for immediate action to reverse the trend of consecutive downgrades in recent years,” Halkitis said in a statement released shortly after S&P Global published the credit downgrade.
“This is why a supplementary budget was necessary, to ensure alignment with our priorities and to proactively address the social, economic and fiscal challenges facing our nation. We are already taking steps to address the concerns expressed in S&P’s report, beginning with our balanced approach to stimulating the economy and providing needed relief to the Bahamian people. We are doing this without further contributing to an increase in the projected national debt in the supplementary budget.”
Improved revenue performance from the tourism sector in the second half of the year has resulted in approximately $100 million in additional tax revenue, the government revealed when it tabled the supplementary budget at the end of last month.
The government anticipates that its plan to reduce value-added tax from 12 percent to 10 percent in January would also result in spurred economic activity and increased revenue as it pursues a revenue-to-GDP target ratio of 25 percent.
Pointing to the Minnis administration’s suspension of its fiscal and debt targets under the Fiscal Responsibility Act following Hurricane Dorian in September 2019, S&P Global said successive governments have not done enough to enact material revenue measures or sustained expenditure cuts.
S&P Global noted that the Davis administration has not announced any new revenue streams, but has instead announced two new committees to review revenue policies and public debt strategy.
The agency stated it expects any recommendations and new policies arising from these committees will take several years before they have a meaningful impact on public finances.
“We remain committed to strengthening the Fiscal Responsibility Act and public financial management legislation, as well as enhancing revenue administration and reimagining revenue policy. We have retooled the Revenue Enhancement Unit and are launching the expert-driven Revenue Policy Committee to propel these efforts. Our goal is to have a 25 percent revenue-to-GDP ratio by 2025,” Halkitis said in response.
“We are also in the process of implementing debt reduction strategies and facilitating more effective debt management guided by the Public Debt Advisory Committee. By all indications, the nation is primed for economic growth for the foreseeable future and the Davis administration remains dedicated to leading our national recovery while simultaneously addressing the nation’s fiscal woes. The supplemental budget begins to lay the foundation for continued and equitable economic advancement through the implementation of sound, holistic economic and fiscal policies. Future budgets will reveal the full extent of the policies and programs we are putting in place to pilot our country in a new direction.”
Sovereign credit rating agency Moody’s also downgraded The Bahamas – to Ba3 negative from Ba2 – on September 17, one day after the Progressive Liberal Party won the general election.
The post Halkitis: Govt addressing S&P downgrade concerns appeared first on The Nassau Guardian.
source https://thenassauguardian.com/halkitis-govt-addressing-sp-downgrade-concerns/
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