New York, April 09, 2020 -- Moody's Investors Service, ("Moody's") has
today placed the Government of Bahamas' Baa3 long-term issuer
and senior unsecured ratings on review for downgrade.
The decision to place The Bahamas' ratings on review for downgrade
reflects significant risks to its economic and fiscal metrics as a result
of the coronavirus outbreak. The rapid and widening spread of the
coronavirus outbreak, deteriorating global economic outlook,
falling oil prices, and asset price declines are creating a severe
and extensive credit shock across many sectors, regions and markets.
For The Bahamas, the shock mainly transmits through the sharp decline
and potentially prolonged slump in the tourism industry, which represents
a sizable proportion of gross value added in the economy as well as a
source of government revenue and export earnings. A likely deep
economic contraction, combined with higher fiscal deficits could
lead to a permanently higher debt and interest burden that is already
elevated relative to Baa3 peers.
The review period will allow Moody's to assess the likely impact of the
outbreak on key credit metrics in 2020, in addition to effects on
the sovereign's economic and fiscal strengths over the coming years.
Additionally, Moody's will assess the policy response to the
shock as well as the government's plan to resume fiscal consolidation
efforts beyond the current fiscal year.
The Bahamas' long-term foreign-currency bond ceiling is
unchanged at Baa1. Its long-term foreign-currency
bank deposit ceiling is unchanged at Baa3. The short-term
foreign-currency bond and bank deposit ceilings remain unchanged
at P-2 and P-3, respectively. The long-term
local currency country risk ceilings are unchanged at A2.
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE
OF THE RATINGS
RATIONALE FOR INITIATING A REVIEW FOR DOWNGRADE ON THE BAHAMAS'
Baa3 RATINGS
The decision to place the ratings on review for downgrade reflects the
significant expected decline in economic output in 2020 due to a large
shock to the tourism sector. Tourism's direct contribution
to Bahamian GDP is close to 20% of the total, while its indirect
contribution through other sectors represents another estimated 20%
of GDP. As a consequence of the spread of the coronavirus disease,
The Bahamas has limited the inflow of visitors, while other countries
have also imposed travel bans. In particular, travel restrictions
from the United States (origin of over 80% of stopover visitors),
as well as Canada and the European Union (origin of 7% of stopover
visitors each) will lower the inflow of tourists into The Bahamas for
several months.
The government has also imposed movement restrictions within its borders
so as to contain the spread of the disease among the local population.
These developments will weigh significantly on economic activity during
the first half of 2020. Consequently, Moody's now forecasts
a contraction in economic activity of about 8% this year,
compared to an estimate of 0% growth previously.
Moody's notes that the coronavirus shock, which the rating
agency considers a social factor under its ESG framework, is affecting
The Bahamas at a time when economic performance had already been hit by
Hurricane Dorian in September 2019. During the review Moody's
will explore the lasting effects these shocks will have upon The Bahamas'
economic strength, by assessing the effectiveness of containment
measures in The Bahamas and other countries but also any structural shifts
in the tourism industry that may result from the pandemic. Prospects
for the resumption of reconstruction efforts in the islands affected by
Hurricane Dorian, as well as new foreign direct investment (FDI)
projects in these locations will also be considered in evaluating the
country's medium term growth potential. Assessing the effect
of the ongoing health crisis on the cruise sector will be important,
as some key FDI projects in the pipeline are headlined by cruiseship companies.
The decline in tourism flows will likely lead to a deterioration of the
current account balance, although the decrease in oil prices and
a likely fall in import demand related to tourism activities will mitigate
the widening of the external deficit. The central bank's
foreign exchange buffers were also at a relatively high level prior to
the coronavirus shock, which should also diminish external liquidity
pressures.
The ongoing coronavirus shock will also weigh on The Bahamas' fiscal
strength metrics. Prior to Hurricane Dorian the government had
been able to comply with the fiscal targets set out in the Fiscal Responsibility
Act (FRA) that was passed in 2018. However, due to the magnitude
of Hurricane Dorian and as allowed by the FRA, authorities amended
their medium-term fiscal plan that, in Moody's view,
already pointed to a debt burden stabilizing at higher levels than previously
expected.
The virus outbreak is compounding the fiscal and debt challenges facing
the government. The fiscal policy response to the coronavirus and
the likely loss in government revenue due to lower economic activity will
likely lead to wider deficits in fiscal 2019/20 to over 5.5%
of GDP and more gradual fiscal consolidation in future years. This
would push The Bahamas's debt metrics higher, further weakening
its fiscal strength and widening the gap with its Baa3-rated peers.
During the review period Moody's will assess the government's
short-term response to the ongoing shock and its fiscal plans for
the next few years as set in the 2020/21 budget to be tabled in May.
The review will look at the effectiveness of the plan in containing the
weakening of the debt metrics and, over the medium term, the
country's ability of the country to reduce its debt load.
Moody's would also assess other policy announcements over the coming
months that seek to further strengthen the fiscal policy framework,
address structural issues that affect economic growth and the fiscal accounts,
among others.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Environmental risks are a key concern for The Bahamas, as it is
located in the so-called Hurricane Belt (as reflected by occurrence
of Hurricane Dorian in September 2019). In addition, The
Bahamas is exposed to rising sea levels, with 72% of its
land being low lying or within five meters above the sea level.
Social risks are material for The Bahamas. Moody's considers
the coronavirus outbreak, the consequences of which for The Bahamas'
credit profile drive this rating action, to be a social risk under
its ESG framework, given the substantial implications for public
health and safety. Additionally, while unemployment rates
have remained high over the past decade, in particular for the younger
segment of the labor force, labor market conditions had improved
in recent years. The coronavirus crisis is likely to weigh significantly
on employment levels in the short term, increasing social needs
and therefore pressure on the government's finances.
Governance risks are not material to The Bahamas' credit profile.
The country showcases a stable political environment, underpinned
by a general consensus around key policy issues. The government's
small size may limit policy implementation, which we have taken
into consideration in the country's institutions and governance strength
assessment. Moreover, improvements in the fiscal policy framework
in recent years have improved the government's credibility in responding
to shocks.
WHAT COULD RESULT IN A DOWNGRADE
We would downgrade the rating if the review were to conclude that The
Bahamas economic and fiscal fundamentals were going to materially deteriorate
as a consequence of the coronavirus shock such that its current Baa3 rating
was no longer aligned to the sovereign's credit fundamentals. A
medium-term policy response that did not support the arrest of
the fiscal deterioration over the coming years, leading to a high
likelihood of a continued upward trend in the debt ratios, would
contribute to this rating outcome.
WHAT COULD LEAD TO CONFIRMATION OF THE RATING AT THE CURRENT LEVEL
Moody's would confirm the rating if the review were to conclude that a
credible fiscal and economic policy response from the government will
efficiently manage the risks arising from the shock notwithstanding potential
continued pressures stemming from the large magnitude of the current crisis.
GDP per capita (PPP basis, US$): 32,817 (2018
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 1.6% (2018 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 2% (2018
Actual)
Gen. Gov. Financial Balance/GDP: -3.4%
(2018 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -12.1% (2018 Actual)
(also known as External Balance)
External debt/GDP: 25.9% (2018 Actual) (Public sector
only)
Economic resiliency: baa3
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 07 April 2020, a rating committee was called to discuss the rating
of the Bahamas, Government of. The main points raised during
the discussion were: The issuer's economic fundamentals, including
its economic strength, have decreased. The issuer's fiscal
or financial strength, including its debt profile, has decreased.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating outcome
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Renzo Merino
VP-Senior Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Yves Lemay
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653