International ratings agency Standard & Poor’s recently downgraded The Bahamas’ credit rating and placed the country’s economy on a negative outlook.

The action was taken due to the short-term “economic shock” brought on by megaresort Baha Mar’s bankruptcy filing and an increasingly “remote” chance of a quick settlement in the resort’s legal battles.

S&P dropped its foreign and local currency sovereign credit rating for The Bahamas, a measure of the strength and viability of the economy, from BBB/A-2 to BBB-/A-3, remaining just within the agency’s “investment-grade” category.

Here follows a statement from the Finance Ministry regarding the recent downgrade:
The ratings decision by Standard & Poor’s although not unexpected, given the recent placement of The Bahamas on credit watch, does not adequately reflect the improved economic and fiscal outlook for the Bahamian economy.

It is important to emphasize however, that The Bahamas maintained its investment grade status.

It is Baha Mar along with other projects throughout The Bahamas that will make healthy contributions to the economy over the medium-term. The Government is now awaiting a court ruling on its request for the appointment of a provisional liquidator, scheduled for the 4th of September 2015, and remains committed to a timely resolution that is in the best interest of the country. If the provisional liquidator is appointed, they are expected to move swiftly to secure completion of the resort and to address concerns about current delays.

While Standard & Poor’s has given the Government some credit for its fiscal reform programme, it should have also affirmed that the achievements are forecasted to cause a reduction in the debt burden in the near term. The International Monetary Fund (IMF) in its most recent Article IV Consultation Report has noted that progress with reforms has outperformed its own expectations. S&P’s projections still show increase in the debt burden in the immediate years ahead when the Ministry of Finance’s forecast are for reductions to begin to set in. This outlook continues to be credible.

The success of the Government’s fiscal strategy is reflected in its ability to raise funds on more favorable terms both internationally and domestically. In addition, the Government has been careful to tie its recent foreign currency borrowings to specific projects, such as the acquisition of vessels for the Royal Bahamas Defence Force and airplanes for Bahamasair. In both of these cases the borrowing has been accessed at very favorable terms.

The Bahamian real economy has improved, with the latest figures for the May jobs survey showing a 2 per cent drop in the unemployment rate. This would support our view that the real economy and consumption which is the primary driver of domestic demand have expanded.

The Ministry of Finance is therefore confident that the economy is on track for recovery, supported by other reforms that will stimulate increased private sector activity. Indeed, a strategic framework is being put in place, in partnership with Power Secure, to tackle the high cost of electricity and progress is imminent on initiatives to improve domestic credit conditions and boost confidence in the residential mortgages market.

Again, The Bahamas continues to make progress on the fiscal front. The Government, while being patient, will redouble its efforts to sustain improvements in this area, and advance reforms to bolster private sector confidence over the medium-term.