Questioned on the impact of the rating, government ministers expressed confidence in The Bahamas’ ability to ride out the economic storm, and – while conceding the accuracy of the ratings – said it was nothing the Bahamian people need be concerned about.
According to the S&P, "the nation’s rapidly slowing economic growth and concerns about bleaker tourism, investment and consumer demand throughout 2008 and 2009" are the main reasons for the negative outlook.
The ratings agency said the US economic downturn has taken a toll on The Bahamas because the country is "heavily" dependent on the US for investment, trade and tourism.
"Weak external liquidity and constrained fiscal flexibility further limit The Bahamas ability to withstand downturn, as the US struggles with a credit crunch, rising costs of food and other goods and a drop in home values," the report said.
According to S&P’s credit analyst Olga Kalinina, "The country’s inherently weak economic structure exacerbates the current downturn and puts more pressure on the policy response."
Government Response
In response to the downgraded rating, Deputy Prime Minister Brent Symonette told the Journal Monday night that the government feels strongly that it can deal with the global financial crisis.
"Our current indicators are that our foreign reserves are still fairly high, unemployment – though it has increased recently – is also within limits that we feel can be managed, and we will adjust fiscal policy accordingly," Mr. Symonette said.
Meantime, Minister of State for Finance Zhivargo Laing conceded that the negative ratings are accurate right now. However, he said, it is nothing Bahamians should be concerned about.
"That is a rating on your ability to raise funds when necessary but that remains the same," Mr. Laing said. "Given the economic plight, given what we know to be our own kind of experience in light what has happened all around the world, it is not surprising that Standard and Poor’s would take that approach."
Investor Relations
In fact, Senator Tanya Wright pointed out that financial service professionals from investors to asset managers all use the S&P ratings to value a range of services available within an economy, and to measure market performance.
"The fact that they have lowered their rating of The Bahamas might have a negative impact on us from a foreign investor standpoint, so I think it’s very important that organizations like Standard and Poor’s begin to view The Bahamas and this jurisdiction more favorably," she said. "A nod in the opposite direction certainly is not a good sign."
"But I think it is reflective of the general attitude towards economic markets worldwide."
On the question of the supposed inherent weakness of The Bahamas’ economic structure, Sen. Wright said other analyses have suggested for some time that there are holes in the country’s economic structure that need to be filled.
"When you look at all of the various composites of a sector from an investor’s standpoint – you look at the legal system, you look at how easily contracts are enforced, entered into and exited from, how start a new business – for a very, very long time we have been aware that there were areas in this regard that needed improvement."
"We’re seeing some measures towards that with attempts to streamline our bureaucracy. So once we are able to focus and hone in on that and cure the defects that we all know exist and make our jurisdiction more competitive, that attitude is going to be a pervasive one throughout the world."
S&P revised its GDP growth forecast for The Bahamas in 2008 and 2009 TO 1.1 percent and 1 percent respectively, down from its earlier forecast of 3 percent and 4 percent growth, according to its report.
S&P said it would likely lower the country’s rating if the US impact on the tourism and construction sectors, which has already led to job losses and a drop in the banks’ asset quality, were to accelerate.
Tourism
However, according to Executive Vice President of the Bahamas Hotel Association Frank Comito, this type of response from the ratings service is happening all over the world.
"There are a lot of countries that are being assessed with the Standard and Poor’s ratings and assessments with growth potential down the line," he said. "All major countries have had to reassess their growth figures and The Bahamas is no different from those. I think this is a reflection of what is going on globally."
Mr. Comito said the rating is no indication of what is going to happen in the next two years.
"We are in unchartered waters but we are hopeful that we are going to turn the situation around and get out of this as quickly as possible. But we must continue to remind ourselves that there are certain things that just we can’t affect."
The executive vice president said nonetheless he does not feel that the negative rating will affect tourism in The Bahamas.
"This is not going to reflect on whether or not we are going to get more visitors coming to The Bahamas," he said. "It is a different type of group that reads these things and the consumer is aware of what is going on. They are reading the same thing about China and the US and Europe who have significantly modified their growth projections and are being assessed as well."
Road To Recovery
S&P said if the government’s efforts to boost the economy with new unemployment benefits, a capital-spending plan and relief to low-income households were successful, the outlook would be raised back to stable.
Sen. Wright said restoring confidence, even a sense of "positivity," in the local and international investors is the first step to recovering.
"I think the onus is upon us to make sure that any kind of short-term momentum in terms of rebuilding consumer confidence is sustained, and therefore no plan that is introduced should be wrapped in the package of a short-term fix," she said.
"It should have some prospects for ensuring that whatever short-term gains are achieved by it are able to be sustained with a sensible long-term plan for economic growth and stimulation."
Mr. Laing also said it is not certain whether or not the ratings will change in the upcoming years.
"It all depends on whether or not the economy recovers, how it recovers and how the US economy recovers in particular," he said.
"It also depends on how the activities that we are trying to accelerate in terms of capital expenditure can be executed and if those things happen it can be a better outlook for The Bahamas."
