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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
Financial Market Brief 19 August 2016
In recent times there has been increased commentary on the utilization of the substantial Value Added Tax (VAT) receipts collected by the government. In an effort to improve the revenue intake and to increase government revenues as a percentage of national income, VAT was implemented at 7.50% on January 01, 2015. Since its implementation, VAT collections have consistently exceeded expectations. For the 11 months of FY 2015-16 (Jul. 2015 – May 2016), the government collected $600.20 million in VAT receipts. While impressive, the substantial VAT intake has masked the slowing trend in overall government revenues. For instance, government revenue receipts for the first five months of 2016 were $3.18 million or 0.37% lower than the same period last year, standing at $844.48 million. Still, during this period, VAT receipts expanded from $182.05 million in 2015 to $282.64 million in 2016, a whopping 55.25% increase. Weekly_Market_Recap_19_August_2016 Click here for full Weekly Market Recap
Financial Market Brief 5 Aug 2016
The results of the recently released May 2016 Labour Force Survey shows signs of improvement in the Bahamas’ labour market. The rate of unemployment fell to 12.70% in May 2016, a decline of 3.50 percentage points, from its peak of 16.20% in May 2013. During this period of progress in the labour market, real GDP growth, on the other hand deteriorated from 0.01% in 2013 to -1.66% in 2015. Growth in GDP usually coincides with improvements in the labour market. Therefore, given the disparity between the unemployment rate and economic growth, recent news on the reduction in the national rate of unemployment should be considered with some caution. Weekly_Market_Recap_July_22_2016 Click here for full Weekly Market Recap
Financial Market Brief 22 July 2016
Over the next few weeks, this column will present a series of articles that will help explain the World Trade Organisation (WTO) and its relevance to the Bahamian economy. The WTO is an intergovernmental organization that deals with global trade rules between nations. Its primary function is to facilitate and govern the orderly and unencumbered flow of trade within the legal guidelines established. The WTO formally began on January 01, 1995 under the “Marrakesh Agreement” and was initially executed by 123 countries on April 16, 1994, replacing the 1948 General Agreement on Tariffs and Trade (GATT), which was also a multilateral international trade agreement. GATT was formed to effect a relatively large reduction on national tariffs and other trade barriers. The intent of GATT was also to remove the trade preferences of participating countries on a shared and mutually advantageous basis. The Bahamas was not a signatory to GATT. Weekly_Market_Recap_July_22_2016 Click here for full Weekly Market Recap
Financial Market Brief 8 July 2016
Following the downgrade of the Bahamas’ local and foreign credit rating to BBB-/A-3 from BBB/A-2 on August 25, 2015, Standard and Poor’s (S&P) stated that there was a greater than one-in-three chance that it could cut the rating again within the next six to twenty-four months if the country’s short and long term economic vulnerabilities deteriorate further. They cited the following: the economic shock of the delay in the opening of Baha Mar and the related ongoing legal challenges; inefficiencies in the energy sector; the relatively high unemployment rate; elevated public sector debt and external debt, and the weak local economy. On August 31, 2015, Moody’s brought ‘a ray of hope’ to the country, when in contrast to the S&P’s downgrade it upheld the Baa2 credit rating and maintained the country’s stable outlook. However, less than one year later, Moody’s assessments changed when on July 1st, 2016 the rating agency placed the government of the Bahamas’ Baa2 bond and issuer rating on a review for downgrade. Judging from its report, this changed stance was due primarily to a revision in the country’s economic growth numbers by the Department of Statistics. Initially, the department reported that the Bahamian economy grew by 1.02% in 2014 and the government projected an economic growth rate of 1.5% for 2015. To the amazement of many, including Moody’s, the country’s economic growth rate was revised downward to negative 0.52% in 2014 and negative 1.66% in 2015. Moody’s has stated that the impending review action signifies that the country’s credit rating is likely to move down by one or more notches. The Bahamas is at risk of being downgraded to junk bond status if Moody’s moves its rating down two or more notches and if S&P does the same following its assessment. Weekly_Market_Recap_July_8_2016 Click here for full Weekly Market Recap
Financial Market Brief 1 July 2016
As we have crossed the half-year mark we present a review of the country’s public finances and a status report on the government’s fiscal reforms announced over two years ago. The year 2015 was a challenging year for the Bahamas and can be characterized by a series of economic highs and lows. The relatively smooth implementation of the new Value Added Tax (VAT) at the beginning of the year, mainly due to the assistance of the private sector, is on the list of highs. Topping the list of lows were the stalled Baha Mar development and Standard & Poor’s downgrade of the Bahamas’ sovereign debt rating to BBB-/A-3 from BBB+/A-2, which was in large part due to the failure of Baha Mar whose opening was expected to deliver a much needed economic boost. While policy makers approached 2016 with optimism, so far, it does not appear that economy is in any better shape than it was in 2015. With the implementation of VAT, the Government has been successful in reducing the deficit from an all-time high of $546.14 million or 6.50% of GDP during fiscal year (FY) 2012-13 to $382.00 million or 4.31% of GDP at the end of FY 2014-15. For the first nine months of FY 2015-16, however, the government missed its deficit target, recording a GFS deficit of $254.11 million compared to a projected GFS deficit of $141.0 million for FY 2015-16. The government is now ambitiously projecting a GFS deficit of $100.0 million or 1.1% of GDP for FY 2016-17. Weekly_Market_Recap_July_1_2016 Click here for full Weekly Market Recap
Financial Market Brief 10 June 2016
It is no exaggeration to say that the Bahamas is facing major economic challenges. Real or constant GDP, which measures economic growth, has contracted by 0.52% in 2014 and 1.66% in 2015. Declining and negative economic growth coupled with high unemployment and job losses in the lucrative Financial Services sector have contributed to the economic challenges that the country faces. While the country’s overall unemployment rate stands at 14.80%, youth unemployment is at an astonishingly high rate of 30.00%. At such high levels, the long-term success of the nation’s youth is restricted. There are many factors, such as low educational levels and lack of job prospects that have led to the high level of unemployment among young persons. This inability to secure quality good paying jobs is contributing to the country’s societal deficiencies and limiting the potential of upward mobility for many of the nation’s youth. Weekly_Market_Recap_June_102016 Click here for full Weekly Market Recap
Financial Market Brief 3 June 2016
The World Bank Group released its Doing Business 2016 report on Wednesday under the theme “Measuring Regulatory Quality and Efficiency.” The report is one of the most highly anticipated reports in the world for ranking how difficult or easy it is for local entrepreneurs to open and operate small to medium size businesses when complying with local regulations. The World Bank calculates its scores via 10 business driven indicators benchmarking 189 countries to determine how far each economy is from the best score for a variety of different measures. The indicators include: Starting a business; Dealing with constructions permits; Getting electricity; Registering property; Getting credit; Protecting minority investors; Paying taxes; Trading across borders; Enforcing contracts; and Resolving insolvency. For the 10th consecutive year, Singapore tops the list, followed by New Zealand (unchanged), Denmark (from 4th), South Korea (from 5th) and Hong Kong (from 3rd). Weekly_Market_Recap_27_May2016 Click here for full Weekly Market Recap
Financial Market Brief May 27
In early April 2016, the phrase ‘Panama Papers’ was coined following the unprecedented leakage of over 11.5 million files from the data base of Mossack Fonseca, the world’s fourth largest offshore law firm. The stolen information was first leaked to a German newspaper which gave the data to the International Consortium of Investigative Journalists (ICIJ). The ICIJ then passed the information on to its large network of global media partners. The information underwent a detailed analysis for over a year before it was released to the public. Among the information disclosed, were over 140 politicians and associated persons with offshore accounts. So far, a major causality stemming from the release of the Panama Papers was the resignation of Iceland’s Prime Minister, after it was revealed that he and his wife co-owned an undisclosed company setup in the British Virgin Islands to hold personal investments. Weekly_Market_Recap_27_May2016 Click here for full Weekly Market Recap
Financial Market Brief 20 May 2016
The second economic priority for the Government of the Bahamas is to create an environment that will result in a substantial reduction in the country’s structurally high unemployment rate. Structural unemployment is a form of longer-lasting unemployment where, “at a given wage, the quantity of labour supplied exceeds the quantity of labour demanded because there is a fundamental mismatch between the number of people who want to work and the number of jobs that are available. The unemployed worker may also lack the skills needed for the job.” Unemployment is one of the key economic challenges facing the Bahamas. This high rate of unemployment creates a series of problems for the Government’s budget, as funds which could otherwise be allocated to productive use, must now be redirected to an increasing number of social services programs. Weekly_Market_Recap_20__May-2016 Click here for full Weekly Market Recap
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