There is no doubt that these are serious times in our country as we continue to confront challenges to our way of life as manifested in the economy and the scourge of crime. Amidst these issues, we woke up last week to the news that Moody's Investors Service had downgraded The Bahamas' issuer and senior unsecured ratings to Baa2 from Baa1. Moody's however revised The Bahamas' outlook upward from negative to stable.
Regardless of how much we pretend and how long some of us had buried our heads in the proverbial sand, the downgrade came as no surprise and was expected. However, secretly we had hoped for the better, relying on improvements in our economy as well as the government's efforts to defer the inevitable. And so here we are in a valley holding on to the dream of a better future and a Bahamas that will emerge stronger from the adversities that face us.
The day of reckoning
The often referenced quote that the chicken has come home to roost provides an effective description of our current state of affairs. As a people, we have demanded and continue to demand basic services and some from the government over the years. Successive administrations have sought to accommodate this appetite by increasing expenditure from year to year. A major factor here has been the archipelagic nature of our country, which results in duplication of infrastructure and government spending on multiple islands.
It is good to see the demand for more accountability and stewardship from the populace and various interest groups in our nation today. This is because the level of activism in the clamor for transparency and financial discipline seems to have been missing hitherto. We seemed to have failed to make the connection between government spending, taxation and our sovereignty. In essence, even though we placed demands on the government over the years, we ignored the reality that either we or future generations would have to pay some day. That day has come and the moment of truth is upon us.
A revelation of what we know
Moody's indicated that the continued deterioration of the government's balance sheet and sluggish economic growth are the main reasons for our downgrade. To say that this was and has always been obvious would be an understatement. The Bahamas' debt-to-GDP ratio has increased from approximately 32 percent in 2007 to 59.0 percent in 2013. Moody's highlighted the fact that at almost 60 percent, the ratio was 20 percentage points higher than the median for Baa-rated sovereigns which stood at 39.5 percent in 2013.
As can be expected, the rise in sovereign debt increased the financing cost and interest payments by the government to 14 percent of revenues in 2013 from about nine percent in 2007. When considered in conjunction with the level of government revenues during the referenced period and corresponding high government expenditure, it is not surprising that the fiscal deficit had increased up to 2012/13.
Peer review and pressure
The term "peer pressure" is normally used to describe the influence that an individual's (especially a child's) company or associates have on his/her behavior or performance. In the context of the review of our sovereign rating by Moody's, it is clear that the pressure on our rating was driven by the metrics and characteristics of countries with the same Baa1 as The Bahamas.
Unfortunately, The Bahamas did not measure up well with its former peers with the same rating. This can be likened to the grading of an individual or entity in comparison to other classmates by an assessor.
The facts are clear, The Bahamas' debt-to- GDP ratio in 2013 was about 60 percent while our peers had an average of 40 percent and we spent 14 percent of our revenues on interest payments in 2013 in contrast with 8.3 percent on average spent on interest payments by our former peers. It should be noted that, at nine percent in 2007, we were above the peer average prior to the Great Recession albeit this would have been offset by a low debt-to-GDP ratio of 32 percent at that time. Moody's estimated that our deficit narrowed to 5.4 percent in 2013/14 but noted that this reduced figure is more than double the average for our former peers. When we add the reality that The Bahamas averaged an annual economic growth rate of only 1.1 percent from 2010 to 2013, it is apparent that our fate was sealed and it had become difficult for Moody's to justify maintaining our Baa1 rating.
Is there a silver lining?
A number of positives can be extracted from the publication by Moody's announcing its downgrade decision. The assigning of a stable outlook by Moody's reflects the rating agency's expectation that the government's "medium-term fiscal consolidation plan will contain the government's debt burden in fiscal 2015 and afterwards lead to a gradual reduction in the debt-to-GDP ratio".
"The rating outlook also envisages that real GDP growth will strengthen somewhat to 2.0-2.5 percent in 2015, owing in large part to the ongoing recovery in economic growth in the U.S., which is closely correlated with tourist arrivals in The Bahamas". The agency seems to express some optimism and confidence in the government's fiscal consolidation plan citing components of our fiscal reform agenda. This is the silver lining in an otherwise disappointing development in our recovery process. It would be unfortunate and a shame, however, if while external parties have some faith in our proposed course of action, we do not believe in our own plan and/or fail to have the courage and discipline to successfully implement the same.
What do we do now?
Our country is at a juncture that requires the talents and cooperation of all of us as we emerge from this valley. Life is made up of mountains and valleys; in the same manner that individuals experience high points (mountains) and low points (valleys) in their lives, so do nations in their national journeys. We must not forget that a valley is only but a depression between two mountains and in our voyage as a nation, we are headed to another mountain top.
In the interim, we must exude fortitude, discipline, unity and transparency to emerge successfully from our current predicament. It is interesting to note from the statistics highlighted by Moody's that the deterioration in our fiscal condition spanned over administrations led by the Free National Movement (FNM) and Progressive Liberal Party (PLP). While it can be argued and perhaps proved that one administration played a bigger role in the current state of our finances, it would still be hypocritical and disingenuous to point fingers. As is often said, he who lives in a glass house should not throw stones.
The actualization of the Bahamian dream may be a challenge for many at this time but the dream will never die but will come to pass with our emergence from this minor setback. We must continue to strive and thrive as we build a nation of fighters that are no strangers to perseverance and overcoming adversity.
o Arinthia S. Komolafe is an attorney-at-law. Comments on this article can be directed to a.s.komolafe510@gmail.com.

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