Chief Risk and Compliance Officer at Colina Holdings Bahamas Limited Emmanuel Komolafe said the impact of the remobilization and opening of Baha Mar on construction, employment and overall economic activity will be pivotal with regard to the expectations of credit ratings agency Moody's. The agency's stable outlook of The Bahamas was based on its expectations relating to sovereign credit metrics, the stabilization of government debt metrics and potential economic growth of one percent to 1.5 percent.
In an email to Guardian Business, Komolafe said, "The ability of the government to reverse the 76 percent year-over-year decline in foreign direct investments (FDI) in 2015 would play a major role in determining the economic fortunes of the country going forward."
Komolafe said it would also be imperative for the government to foster an environment that encourages local investment and stimulates the micro, small and medium-sized enterprises (MSMEs) sector. He warned that the government will be under scrutiny insofar as budgetary or economic data and projections line up with actual results in the future.
Last week, Moody's downgraded The Bahamas' sovereign credit rating from Baa2 to Baa3 but changed the negative watch to stable.
Moody's first driver behind the downgrade is its expectation that "The Bahamas' economic performance over the next five years will likely remain subdued and constrained by structural rigidities".
"Structural constraints that limit potential growth include relatively high energy costs, a bureaucratic burden that hinders doing business and labor market rigidities," Moody's said.
Moody's added that the constraints are "reflected in, for example, the prevalent high rate of unemployment and non-performing loans in the banking system, and have also negatively affected the competitiveness of the tourism sector".
In regard to Moody's mention of high energy costs as a structural constraint, Komolafe said the government should "expedite the effective implementation of its energy reform program to address high energy costs and the negative impact it is having on businesses as well as the entire economy".
"Public sector reform and the streamlining of processes involved in the conduct of commerce in The Bahamas will be important in addressing the ease of doing business.
"This includes, but is not limited to, the accelerated implementation of e-government services and a structured approach to addressing legacy financial issues associated with public corporations, particularly as it relates to contingent liabilities guaranteed by the government," said Komolafe.
He cited the decline of the unemployment rate from 14.8 percent in November 2015 to 12.7 percent in May 2016 and the fact that non-performing loans (NPLs) fell by seven percent for the first half of 2016.
He said further improvement in these statistics can have a positive impact on the credit rating:
"While there were some unique events and timing considerations that may have contributed to the decrease in these figures, this is a positive trend that, if sustained, bodes well for our credit rating."
In order for an upgrade of the credit rating to occur, Komolafe said, "We will need to see above-average economic growth, structural reforms, a thriving private sector, increased investor confidence and significant improvements in the country's fiscal position."
He added that these would be "in addition to the points raised earlier on reversal of FDI trend, MSMEs, energy reform, NPLs, unemployment, and the pace at which NHI is introduced will also factor into the equation".
the introduction of NHI has the potential to place upward pressure on government expenditure."
Komolafe added that "the implementation of an NHI scheme that is disruptive to the private sector and economy, unaffordable and/or unsustainable, and will not enhance our chances of maintaining or improving our sovereign credit rating".
Xian Smith, Guardian Business Reporter
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