The decision by Moody's Investors Service to downgrade The Bahamas' sovereign credit rating presents The Bahamas with a historic opportunity to change its economic strategy and political processes to produce a more sustainable and secure future for The Bahamas, according to Alfred Sears, QC, the Progressive Liberal Party's (PLP) candidate for Fort Charlotte.
Sears said, "What we must not do is wring our hands and say, 'Oh, this is bad'. We should seize this moment and make the kind of structural changes that will put our national development on a more sustainable path."
Moody's lowered the bond and issuer ratings of the government of The Bahamas one notch, to Baa3 from Baa2, despite the threat that they could have been lowered even more.
Moody's expects The Bahamas' economic performance over the next five years will likely remain subdued and constrained by structural rigidities "relatively high energy costs, a bureaucratic burden that hinders doing business and labor market rigidities, as reflected in high unemployment, a high rate of non-performing loans and declining competitiveness in the tourism sector.
Despite the measures implemented by the government, the downward trend of the economy has not been arrested, with real GDP growth expected to average 1.3 percent during this period, the fourth weakest economic performance out of the current 22 Baa-rated sovereigns.
"Apart from obvious need for fiscal restraint, what Moody's ratings downgrade demonstrates most clearly is the need for a rational diversification policy, a robust growth strategy with specific targets and transparent and efficient governance practices," said Sears, who plans to run for the leadership of the PLP in November.
He said projected GDP growth of under two percent is insufficient to meet employment and generate economic growth.
"It is time to change this unsustainable path. Let us pursue a growth strategy to expand productive sectors, empower Bahamians to own capital and produce sustainable and balanced national development," Sears said.
Among the proposals Sears put forward to achieve this goal is an aggressive increase in Bahamian ownership and entrepreneurship, through incentives and private/public partnerships, in all sectors of the Bahamian economy.
In fact, Sears said his proposals would diversify the economy by increasing the contribution of agriculture, maritime, marine, technology and innovation hub and cultural sectors, each by 10 percent to GDP over the next 10 years.
Addressing the weakness Moody's noted in the tourism product, Sears proposed the structured implementation of private/public promotions of convention, medical, heritage, entertainment, sports and cultural tourism, with an emphasis on boutique and bed and breakfast Bahamian owned hotels to improve the tourism product for both foreign and domestic tourists.
Sears also insisted that there be an end to the saturation of the public service and public corporations and an end to political cronyism.
This would be facilitated by privatizing state subsidized public corporations by an initial public offering to Bahamian investors; restructuring the national incentives system and encouraging Bahamian entrepreneurs, through exemptions from customs duties, real property tax, the provision of Crown land and the promotion of joint ventures between Bahamian and foreign direct investors.
The other major concern for Moody's was The Bahamas' limited fiscal space following the persistent deterioration of the government's balance sheet.
Moody's baseline, which the agency pointed out differs from that of the government, forecasts that the debt/GDP ratio would peak in 2016/17 at about 67 percent and then stabilize around 65 percent. This somewhat grim news suggests that a new paradigm must obtain, according to Sears, who said the approach to governance must change if the nation is to see an improved result. He pointed out that Moody's said a strengthening of budgetary processes; including expenditure controls and improvements in revenue collections that lead to a rapid deficit reduction, would be credit positive.
In addition, the rating would also move up if implementation of structural reforms fostered higher potential growth and contributed to a significant improvement in The Bahamas' debt metrics.
Among the other areas Sears said reform must focus, he cited energy, devolution of government and empowerment of local authorities, attacking wastage and bureaucratic rigidity, fiscal discipline and accountability through the creation of an office of contractor general and integrity commission; improving the ease of doing business; and improving labor relations through the implementation of an effective tripartite mechanism, and enacting a Pensions Act to ensure industrial harmony, fairness and respect in the workplace.
"In the best case scenario - even with Baha Mar's remobilization and opening - the structural rigidities to which Moody's refers will remain," Sears said.
"We must seize this moment and strike out in a new direction. The Bahamas is essentially using an economic model developed in the 1950s, and has yet to transform itself into the 21st century economy that is needed if we are to realize our full potential.
"Moody's has given us an opportunity to rethink how we are doing things. I say we embrace the urgency of now, and change."
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