International credit ratings agency Moody's spared The Bahamas another downgrade yesterday, but warned the government that if its commitment to fiscal discipline "diminishes", the country's credit rating could once again be lowered.
In its quarterly credit opinion, Moody's revealed that it maintained The Bahamas' Baa3 sovereign credit rating and stable outlook. But Moody's estimated that the economy would only grow by 0.1 percent in 2016 - a figure far less than the Christie administration's original projection of 0.5 percent and less than Standard and Poor's (S&P) projection of 0.3 percent.
The ratings giant pointed to issues plaguing the country's fiscal health, such as low, long-term economic growth prospects and comparatively high government debt levels.
Moody's also placed pressure on the government to achieve expected growth targets and maintain high revenue levels in order to avoid being downgraded again.
"The rating could also be downgraded if the government's contingent liabilities, in the form of guaranteed debt of state-owned enterprises, were to crystallize on the government's balance sheet," Moody's stated.
Unlike Standard & Poor's - the leading credit rating agency that downgraded the country's credit rating to "junk status" before the start of the new year - Moody's largely factored in the potential economic contribution from the restart of Baha Mar.
The opening of Baha Mar was such a vital component in Moody's outlook, that the agency pinned the potential success of the resort to an increase in growth by 1.2-2.0 percent for 2017-2018.
"For 2016 and 2017 we expect growth to remain below the economy's potential growth rate of 1.5 percent, after which economic performance could be boosted to around 2.0 percent depending on the progress made on the Baha Mar resort," said Moody's.
"Over the medium term, structural rigidities in the energy sector and labor market, as well as impediments to the ease of doing business, may constrain growth to rates closer to 1.5 percent."
Moody's also raised its deficit projections to 3.6 percent of gross domestic product (GDP) for this fiscal year as a result of increased government borrowing following the passage of Hurricane Matthew.
"As the government will incur additional borrowing to cover reconstruction spending for public infrastructure, we now expect the central government debt/GDP ratio to reach 70 percent by end-FY 2017.
"Thereafter, fiscal consolidation efforts that include boosting revenues through higher tax compliance, as well as measures to rein in expenditures, will contribute to the stabilization of the debt trend in 2018-19," said Moody's.
Moody's pointed out that The Bahamas has the lowest fiscal strength score among its Baa peers.
"The debt-to-GDP ratio exceeds the Baa median (45 percent), having more than doubled over the last decade to an estimated 67.5 percent by the end of fiscal 2016," Moody's stated.
"Government interest payments relative to revenues have also increased over 13.0 percent in FY 2016 from less than 10 percent in FY 2008, suggesting a somewhat limited fiscal space compared with that of most peers."
In addition, the agency acknowledged the country's "heavy dependence on tourism from the U.S." and "increasingly uncertain prospects for the offshore financial sector".
Notably, it was recently reported that The Bahamas was being considered once again by the European Union to be placed on an upcoming blacklist.
Nevertheless, Moody's touted the performance of the country's banking sector, taking note of its "adequate capitalization ratios" and "ample liquidity".
The credit strengths underpinning The Bahamas' Baa3 rating include "a comparatively high level of GDP per capita, a stable political system with high policy predictability, and low external debt ratios relative to peers".

Click here to read more at The Nassau Guardian