By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

The Central Bank’s governor yesterday said Standard & Poor’s (S&P’s) August downgrade of the Bahamas’ sovereign credit rating to one notch above ‘junk’ status was “a wake up call”, not a “seismic event”.

Wendy Craigg argued that many Caribbean countries had been dealt even lower ratings, and said: “There are many countries that are lower rated than the Bahamas, many countries, and they still are able to source investments, but it is at a higher rate of interest.

“In our case it is more concerning if the issues are not addressed. We should look at this as a wake-up call. We have an opportunity to do things to fix the situation.”

Mrs Craigg added that the GDP growth outlook for most countries in the region, including the Bahamas, was now below 2 per cent.

“What is important now is for us to achieve stability in the ratings,” she added. “Because we have a negative outlook we need to be able to show in a short period of time that we can get back up to at least stable.”

Mrs Craigg said that while tourism helps to grow the economy, the sector today is not going to give the Bahamas the ‘dynamic growth’ it needs.

“We are faced with increasing competition in tourism so we have to enhance the product, perhaps event tourism, medical tourism, something else to lift the growth rate, because sun, sand and sea will not provide the dynamic growth rate we are looking for,” she added.

Mrs Craigg said S&P and Moody’s account for 80 per cent of all credit ratings while addressing a Bahamas Institute of Chartered Accountants (BICA) seminar.

She added that the Bahamas has seen three downgrades from S&P, the most recent coming this year. In August, S&P cut the sovereign rating to ‘BBB-/A-3’ from ‘BBB+/A-2’, and warned of “depressed growth” due to a combination of the Baha Mar dispute and long-term structural weaknesses in the economy.

Likewise, the Bahamas has been downgraded by Moody’s twice, the latest in 2014 when it changed the country’s credit rating from ‘Baa2’ from ‘Baa1’.

“Just looking at the trend, we have had a relatively strong rating profile throughout the financial crisis. All of the downgrades to-date have been within the investment grade tranche and rather gradual,” Mrs Craigg said.

“There has been no ‘two notches’ downgrade. Most of the changes have been attributed to the changes in the fiscal position and increasing debt levels.

“We are susceptible by nature to global shocks because of our heavy dependence on tourism and foreign direct investments, so what you would find is a slowdown in the global economy would have implications for economic growth and the ability of the Government to have revenue sustainability.”

Mrs Craigg added that while credit ratings are essentially opinions and judgments, they carry considerable weight.

“At the end of the day, what an investor gets is low cost information for making decisions relative to risk. The sovereign rating facilitates them being able to make a comparison between different investments,” she explained.

“It determines the ability of investment for being included in a portfolio. It’s to really enhance the access to private capital markets and really benefit from lower debt instruments and interest costs. What you find is that the higher the rating, the lower the perceived investment risk and the lower the borrowing cost.”