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BHS | Nov 14, 2020

Bahamas suffers credit rating downgrade

/ Our Today

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The international credit ratings agency, Standards and Poor (S&P) has downgraded The Bahamas’ sovereign credit rating further into junk territory.

Another ratings agency, Moody’s Investor Service, also downgraded the country’s credit rating into non-investment grade status in June. In its latest credit rating assessment of the Caribbean territory, S&P reports that the downgrade was prompted by the deeper-than-expected financial shocks to the country’s tourism sector, the life blood of the economy aided by the government’s poor balance sheet.

The poor returns on Bahamas’ national accounts is due to COVID-19 as well as the diminishing prospect of getting back on track with the country’s fiscal targets before the next general election. Tourism, which accounts for as much as 40 per cent of The Bahamas economy, grounded to a halt when the global pandemic hit in March.

Yesterday the credit ratings agency shifted The Bahamas’ credit rating down one tier in its non-investment grade category from BB plus to BB. At the time S&P also downgraded the country’s transfer and convertibility assessment from BB plus to BB.

NEWS GETS WORSE

This downgrade has implications for The Bahamas’ ability to access foreign currency. The news gets even worse with S&P’s maintaining its negative outlook, which it downgraded in March from stable to negative.

According to the ratings agency, “a review of the latest tourism data up to July revealed a worse-than-anticipated drop-off of 62 per cent in the sector”. Based on this, S&P is predicting that The Bahamas economy will contract up to 21 per cent this year, which is a much faster decline than anticipated.

S&P had earlier projected a shower contraction of 16 per cent, which was forecasted in March. However, the ratings agency is anticipating a return to economic growth in the next three years.

S&P is expecting that the government’s deficit and debt-to-GDP ratio will fall in line with budgetary projections this fiscal year, despite the negative outlook.

TOURISM SLOWLY REOPENING

In its assessment, S&P underscored that the country has slowly reopened since June, but the tourism sector remains affected by local and source-market COVID-19 outbreaks and local lockdowns and quarantine… the government implemented a revised protocol for tourists beginning November 1, which eliminated the quarantine period and introduced revised testing requirements. However, despite these changes, many resorts have not yet reopened.

Pointing to Atlantis on Paradise Island and Baha Mar on New Providence, regarded as The Bahamas’ flagship properties, which were closed over the course of the pandemic, S&P acknowledged that both plan to reopen next month. The ratings agency contends that if the expected 2021 recovery is weaker or more prolonged there is a 33 per cent chance that it would further lower the country’s credit ratings.

S&P explains that its outlook could be revised to stable over the next 12 months if risks were to subside and the country’s economy and finances stabilised in line with forecasts. The agency warned that failure to eliminate fiscal deficits, implement timely fiscal reform and strengthen public finances would put The Bahamas at major risk.

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