Last week, in part one of this series, we noted that in December 2016 Standard and Poor's Global Ratings (S&P) revised the outlook on its long-term rating on the Commonwealth of The Bahamas to BB+ (speculative or "junk" grade) from BBB- (investment grade). In that article, we examined the major ratings agencies, how sovereign ratings are calculated, what Standard & Poor's said about The Bahamas' rating and what the downgrade means for The Bahamas.
This is the first time that The Bahamas "achieved" a junk status rating from an internationally recognized rating agency.
This week, in part two of this series, we would like to Consider This... What was the government's response to the S&P downgrade?

The government's response
The government rapidly responded to the downgrade with the following statements: "The government is disappointed in this development, and is of the view that S&P's decision does not give appropriate weight to important developments on the ground, nor The Bahamas' strong commitment to address its economic and fiscal challenges."
The statement continued: "The government remains focused on its plans to grow the economy, through responsible, balanced and sustainable policy initiatives and measures.
"The Bahamas' short to medium-term prospects for placing the economy on a stronger growth trajectory are more encouraging than they have been since the recent economic and financial crisis, and it is most unfortunate that S&P did not seem to fully consider the impact of the many growth generating initiatives underway.
"There is now no uncertainty regarding the restart and completion of the Baha Mar project which, alongside the other foreign investment-related projects underway, will help to ignite growth, boost employment, improve business and consumer confidence and contribute to government revenue.
"The government's approach to placing the public finances on a stronger footing continues to be a balanced and prudent one. VAT remains the centerpiece revenue source, supported by aggressive tax administration and compliance measures. A strategic program was recently launched to bring revenue administration processes, tools and techniques in line with international best practices, to safeguard the revenue base. These optimizing initiatives, in the areas of real property taxes, business license, VAT and customs administration, are targeted to generate sizeable additional revenue during the upcoming six to 12-month period.
"On the expenditure side, measures have been taken to rationalize spending through initiatives such as centralized procurement of goods and services and public-private partnerships.
"The government is committed to achieving a fiscal balance compatible with an affordable level of debt and one that eventually will support a rebuilding of fiscal buffers to deal with unforeseen circumstances.
"While events such as the two recent hurricanes, Joaquin and Matthew, have placed additional strain on the government's resources and added to the debt stock, the government is confident that the prospective near-term improvement in economic performance will help to move the country back on track with its medium-term fiscal sustainability objectives. The debt strategy, while focusing on containing the growth in the debt stock, also includes ensuring that state-owned enterprises are more accountable.
"On the financial front, important steps have been taken by the various regulatory authorities to safeguard and strengthen financial sector stability. The government's Mortgage Relief Programme, together with other private sector measures to support home ownership, will contribute to the resilience of the financial sector and the resumption in bank lending.
"Reducing structural impediments to private sector growth and enhancing the external competitiveness of the Bahamian economy remain key priorities of the government. Through the soon-to-be-released National Development Plan, the government is determined to pursue, with urgency, sustainable economic reforms and responsible policy initiatives to further unlock The Bahamas' growth potential - by way of continued investment in economic infrastructure, and reforms to improve the business environment and energy sector.
"It is the government's view that The Bahamas' short to medium-term prospects are positive, and the immediate focus of policy makers is on ensuring that the many growth promoting initiatives underway take root and yield the expected dividends. The facts are compelling that The Bahamas remains an attractive jurisdiction for foreign investments. As S&P monitors the impact of these various macroeconomic and fiscal measures and projects over the next six to 12 months, the government is confident that The Bahamas will be able to secure an improved rating outcome."
This was all very nicely crafted, politically correct and mesmerizingly soothing rhetoric, which in effect says little about what specific, workable steps will be taken to remove us from junk status. It was much more akin to the Shakespearian observation, "full of sound and fury, but signifying nothing".
Simply speaking, these noble objectives will not transform them into reality or workable and sustainable solutions. Much more is needed.
It will take a single-minded, laser-focused approach to ameliorate the systemic challenges that the government faces. They just cannot be talked away. It is too late for simplistic approaches to complex challenges.
There is similarly no scintilla of a sensible solution springing from the Official Opposition, except for the critical lamentations by Loretta Butler-Turner, the Official Opposition's leader, in the House of Assembly, who responded: "Oh, my God, this is not a good Christmas. We've obviously gone over that precipice that I've been talking about for some time."
Not a good Christmas? What she really meant is that, in addition to being a poor Christmas, it will in all likelihood be an extraordinarily challenging year or two, or even longer, before we emerge from this economic abyss. I was recently reminded, "It's not possible to dig yourself out of a hole. The more you dig, the deeper the hole becomes."
The Official Opposition does not possess one single, creative, insightful idea of how we can effectively address the S&P downgrade. The same no-solution blame game was manifested by the other major political party: the flailing, flapping FNM that is floundering in its incessant infighting.

Conclusion
In the final installment of this series, we will discuss what proactive measures could be implemented to address the critical challenges that lie ahead, to ameliorate our systemic weaknesses and reverse the factors that got us to this perilous and precarious point.

o Philip C. Galanis is the managing partner of HLB Galanis and Co., Chartered Accountants, Forensic & Litigation Support Services. He served 15 years in Parliament. Please send your comments to pgalanis@gmail.com.

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