Credit rating agency Moody's released a credit opinion on The Bahamas yesterday, restating the country's B1 rating and stable outlook, and explaining that any evidence of the government facing a liquidity crunch as it prepares to meet upcoming external debt amortizations in 2024 could lead to a downgrade in the future.
"We assess government liquidity risk at Ba, informed by the government's high borrowing requirements and high rollover risk on external commercial debt," the report said.
"Our assessment of government liquidity risk also captures the government's less reliable access to external commercial debt given the rise in borrowing costs since the pandemic."
It is almost one year to the day that Moody's downgraded this country to B1 from Ba3, though it improved this nation's economic outlook from negative to stable.
It was the first stable outlook bestowed on the country since February 2019 when The Bahamas credit rating was Baa3.
Moody's said in yesterday's credit opinion that the country continues to reflect institutional strengthening, suggesting overall macroeconomic stability despite high debt burdens and "weak debt affordability metrics".
"Fiscal strength will remain weaker than that of similarly-rated peers," according to Moody's.
"The Bahamas has a relatively strong institutional framework and stable political system.
"A fiscal policy framework that has been responsive to economic shocks will support fiscal consolidation and a downward trend in government debt ratios.
"Relatively strong institutions, along with high GDP (gross domestic product) per-capita relative to peers provide support to the sovereign's debt-carrying capacity."
Moody's said The Bahamas' credit worthiness could be upgraded if the country demonstrates that it can diversify its debt funding to support improvements in the cost of borrowing.
Moody's said more fiscal and economic policies that improve fiscal consolidation and debt reduction could also lead to a credit rating upgrade.
The credit agency said other factors that could lead to a credit downgrade include a slowed pace of fiscal consolidation, "which contributes to tighter financing conditions and weaker debt affordability metrics", and if The Bahamas was to be hit with a climate-related shock "and the policy response did not present a credible return to the fiscal rule's medium-term targets".
Moody's said, "The Bahamas' credit quality is also exposed to climate change risk because of the small size of the country and the frequency and magnitude of natural disasters.
"The Bahamas is vulnerable to hurricanes, with 72 percent of its land low lying or located within five meters above sea level. This exposure can manifest itself through higher growth volatility.
"However, high income levels and the quality of infrastructure have allowed the country to better absorb climate-related shocks than the other islands in the Caribbean."
Moody's expects the country's GDP to growth to decrease to 2.5 percent next year, predicting that the country would end 2023 at 3.0 percent.
It said that the country's debt to GDP ratio could shrink to 77 percent next year from 82.6 percent this year.
The report also rates this country's environmental, social and governance score as moderately negative.
"The Bahamas' ESG credit impact score is moderately negative (CIS-3) reflecting its exposure to environmental risks, moderately negative social risks and a strong institutional framework that supports its governance," Moody's said.
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