While not discrediting the warning from the Inter-American Development Bank (IDB) that the country worsened its potential to face a credit rating downgrade as a result of the delayed implementation of value-added tax (VAT), former Minister of State for Finance James Smith said he puts more weight in what the credit agencies themselves have said.
Prime Minister Perry Christie announced on Wednesday that the implementation of VAT will be delayed to January 1, 2015.
Before that, it was unclear when the government would implement VAT.
In its May Caribbean Region Quarterly Bulletin, the IDB noted that international agencies have expressed concern about the lack of programs geared toward reducing government debt.
"Slippages in the implementation (delays in implementation, confirmation of the VAT rate, finalization of the tariff rates, etc.) have resulted in warnings of likely downgrades by one-to-two notches in 2014, thereby leading to a loss of the country's investment grade rating," the IDB said.
"Recent push-backs in the implementation date from July 1, 2014 to later in 2014 or 2015 further worsen the potential for downgrades."
But Smith, who spoke to The Nassau Guardian this week, said a more important reference is the commentary from the rating agencies.
Earlier this month, Dr. Lisa Schineller, lead analyst for The Bahamas for Standard and Poor's, told Guardian Business that the agency will assess the "overall fiscal plan" when it makes a determination on how it will rate The Bahamas later this year.
Asked if the decision to delay VAT could lead to a credit downgrade, Schineller said: "We would look at that in concert with other components.
"It could depend on where we see the effort on the VAT coming out. What we'll be looking at is the overall fiscal picture."
Smith said based on Schineller's comments, the country could still avoid a downgrade despite the VAT delay.
"I would put more weight on what the rating agency itself said," he said.
The government is expected to present the VAT Bill next month.
Christie said VAT will now be introduced at a rate of 7.5 percent, down from the 15 percent that was initially proposed.
However, he said there will be "few exemptions" and no duty reductions.
Despite the delay, VAT is expected to significantly increase the government's revenue.
According to the budget projections, VAT is expected to generate $150 million in the second half of the upcoming fiscal year and an additional $300 million in 2015/2016, which is more than was projected under the first model.
Under the previous model, VAT was projected to increase revenue by $200 million in the first year.

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