Moody’s Doubles Down On Bahamas’ ‘Overly Optimistic’ Forecasts  

 

• Moody’s has doubled down on concerns that The Bahamian Government’s Budget revenue forecasts are “overly optimistic” and that its debt servicing payments will be higher than projected due to the rise in global interest rates.
• The credit rating agency, fresh from downgrading The Bahamas deeper into ‘junk’ status over concerns the Government may be unable to access the debt financing it requires, also suggested that the Davis administration’s plans to restrain public spending “will weigh on growth” and thus slow down economic expansion.
• The economic recovery is a key driver of fiscal consolidation in fiscal year 2023. A continued uptick in tourism inflows will drive the recovery at the same time as construction and foreign-led investment projects ramp up. These factors, in addition to increased tax collection supported by the re-introduced Revenue Enhancement Unit, underpin the Government’s expectation that recurrent revenue will expand by 14.1% in fiscal year 2023
• However, the Ministry of Finance last week suggested the Moody’s downgrade, which was based on fears that The Bahamas’ access to borrowing is being squeezed, is not warranted because the Government’s borrowing plan for the 2022-2023 fiscal year shows it is aiming to avoid the global bond markets over the next nine months due to the adverse high-interest rate environment it would face.
• Nevertheless, Moody’s noted that “assuming that the tourism sector carries this momentum through the upcoming peak season, economic activity will continue to pick up. We forecast real GDP growth of 7% in 2022. Although the sector’s recovery, which will support the broader economy’s growth, is subject to risks of inflation in tourism source markets and a potential outbreak of a new coronavirus variant, we expect inflows to continue to converge with their pre-pandemic levels in the remainder of 2022.”

(Source: The Tribune)