Financial Market Brief 26 August 2016
On August 22, 2016, Moody’s Investors Service remained true to its word as the rating agency downgraded the Government of the Bahamas’ bond and issuer ratings. Even though the ratings agency indicated in its July 01, 2016 ‘Rating Review’ that the Bahamas’ sovereign rating was likely to move down one or more notches, it only downgraded the rating by one notch to Baa3 from Baa2. Moody’s, however, maintained the country’s stable credit rating outlook. This latest rating action by Moody’s brings the Bahamas’ sovereign debt rating on par with Standard & Poor’s BBB- rating which is also just one notch above ‘junk bond’ status. The key drivers behind Moody’s recent rating downgrade are the country’s low medium-term growth prospects which have resulted in a weaker economic strength than other sovereigns with Baa ratings; and the country’s persistently high and escalating government debt ratios which have led to a much narrower fiscal gap than rating peers. This rating downgrade comes as no surprise since Moody’s warned policymakers during its August 31, 2015 report on the Bahamas that if Baha Mar’s opening extended beyond the second half of 2016, the rating agency’s growth estimate for the Bahamas would be lowered to 1.50% - 2.00%. It is now August 2016 and Baha Mar is still not completed. The Prime Minister, Mr. Perry Christie, announced on August 22, 2016 that construction to complete Baha Mar will commence in September. Another trigger that prompted the rating review by Moody’s and the eventual downgrade was the June 2016 announcement that the Bahamian economy contracted in 2014 and 2015. The Department of Statistics surprised many, including Moody’s, when it revealed that the economy had in fact contracted by 0.52% in 2014 rather than grown by 1.02% as previously reported. In 2015 the economy also recorded a negative growth of 1.66%. These adjustments to growth, particularly for 2015, represent a negative 316 basis points (or 3.16 percentage points) deviation from Moody’s 2015 growth estimates. Weekly_Market_Recap_26_August_2016 Click here for full Weekly Market Recap

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