The managing partner of a top accounting firm says the Moody’s downgrade of The Bahamas is “pivotal” and reflective of the country’s limited growth prospects.
Michele Thompson, a top executive at Ernst & Young, believes the downgrade from A3 to Baa1 last Thursday is also indicative of a weak recovery in tourism and the country’s increasing debt levels.
“We have a rising debt with weak avenues for sustaining debt. The revenue options for the government remain limited. It’s clearly a reflection of our limited growth prospects, weak recovery in tourism and other key inputs that would make a difference. That places added pressure on our economy,” she told Guardian Business.
Issues like the Eurozone sovereign crisis and even the general election held in May have also impacted the local economy and played a role in the agency’s latest rating.
“The Eurozone sovereign crisis has had a global economic impact since 2010 and I would describe it probably as the biggest global macroeconomic issue of our time, if not the most significant market event since the financial meltdown in 2008. I think this in turn has led to the tightening of credit availability, which as we know is the key to financing growth,” Thompson shared.
“Our economic performance has traditionally in The Bahamas been coupled with our growth in tourism. We see that the U.S economy is not rebounding currently and 80 percent of our tourism comes from that market. This has always been closely followed by investment, a construction boom and an increase in employment levels. That global impact has been trickled down and our financial services sector continues to be under a lot of strain.”
In addition to a change in government, major infrastructural investments have impacted the country’s bottom line. The Ernst & Young executive believes these factors have affected investor confidence.
“You know when governments change, investors are weary and they want to wait and see where the policy movers are going to take the economy and the fiscal policies that will come into play. People have been in wait-and-see mode. That happened in mid-year and so that clearly would have had an impact on how our economy has moved,” according to Thompson.
“We have had massive infrastructural investments undertaken by the government, which I think have been great but what goes hand in hand with that is an increase in debt.”
Like any other jurisdiction, Thompson doesn’t believe The Bahamas will be untainted by what’s going on globally in the financial services area.
Edward Al-Hussainy, assistant vice president and analyst at Moody’s, said the Christie administration must take more tangible measures to bolster revenue streams and reign in expenditure.
“It hasn’t really been this particular government. It has been a gradual decline over the last few years, a slow and gradual deterioration,” he told Guardian Business. “What we are looking for is a strategy to arrest that. The thinking behind the downgrade is we don’t see that coming soon enough.”
By Scieska Adderley
Guardian Business Reporter