Komolafe: Downgrade threat may 'motivate' implementation of structural, policy reforms

Wed, Jul 19th 2017, 11:03 AM

While international credit ratings agency Moody's recently indicated that it has placed The Bahamas' Baa3 rating on review for downgrade, Chairman of the Bahamas Insurance Association (BIA) Emmanuel Komolafe said there are still a few factors that work to the country's advantage.
"The fact that we have never defaulted on our obligations and the percentage of our national debt that constitutes foreign or external debt," Komolafe told Guardian Business yesterday.
"Our external debt, as a percentage of GDP, stood at 26.6 percent as at the end of 2016, according to Moody's. This is a figure that we must continue to monitor."
Komolafe did acknowledge that the Moody's downgrade threat comes "as no real surprise", given the country's economic indicators over the years.
"The systemic issues that have driven multiple downgrades of The Bahamas' credit rating over the past decade or so are not shrouded in secrecy, but have been known to us for years," he said.
On the positive front, Komolafe said the threat of this downgrade may "motivate" The Bahamas to "implement structural and policy reforms necessary to create sustainable and inclusive growth".
"There is a school of thought that is of the view that a downgrade of The Bahamas' credit rating to junk status by Moody's may not be as significant, seeing that S&P had downgraded the nation's credit rating to junk status earlier," he said.
"However, should Moody's - another major international credit rating agency - take a similar rating action, it could be construed as confirmation, or validation, of S&P's assessment and rating decision."
Komolafe pointed out that the road out of junk status to investment grade for The Bahamas will not be easy and will require "some tough decisions" to be made.
And while there are various avenues of fiscal reform, Komolafe said increasing taxes would not be one of them.
"Increasing taxes is not the panacea, because we cannot focus solely on boosting government revenue by taking money out of the private sector and further reducing the disposable income of consumers in an economy with negative to no growth," he said.
He noted that the speed at which the country regains its investment status would be "solely dependent" on the extent to which the government and other key sectors of the economy are willing to go to ensure the country's recovery.
"In order to get out of this quagmire we find ourselves in, a multifaceted and deliberate approach will need to be adopted," he contended.

Click here to read more at The Nassau Guardian

 Sponsored Ads