Moody’s: Irma damage to ‘test Bahamas ability’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Moody’s has warned that Hurricane Irma will “test the ability” of the Bahamas and other impacted nations to repair the damage and service debt over the next six to 12 months.

The credit rating agency, in a report on the storm’s consequences for Caribbean sovereign creditworthiness, delivered another timely reminder of how such events can throw the Government’s fiscal consolidation plan off-track as Hurricane Maria looms.

Moody’s, which held-off on downgrading the Bahamas’ to ‘junk’ status last month, was also far more ‘bearish’ on this nation’s 2017 economic growth prospects, suggesting GDP would expand by less than 1 per cent compared to the International Monetary Fund’s (IMF) 1.75 per cent projection.

It based this on the Grand Lucayan’s closure and subsequent impact on economic activity and jobs in Freeport.

“The magnitude of the storm will test the ability of these Caribbean and North Atlantic nations to restore the damage and service their debt in the next six to 12 months,” Moody’s said in a recent research report. “Among our rated issuers, Sint Maarten, Cuba, Dominican Republic and the Bahamas will be most affected.”

The Bahamas was least impacted, as Irma spared its major population and economic centres a direct hit. While the storm devastated Ragged Island and other islands in the south-eastern Bahamas, the Government has already said it will not have to undertake any emergency borrowing to effect repairs.

But, recalling the Bahamas’ vulnerability to major storms, Moody’s said: “The Bahamas’ fiscal and growth performance was negatively affected by Hurricanes Joaquin in 2015 and Matthew in 2016, with damages estimated at $800 million (9 per cent of GDP) and the latter being the most severe one.

“We estimate that the economy contracted in 2016 for a third consecutive year due to the damages and a weak tourism sector performance. Damages caused to tourism infrastructure on Grand Bahama island last year will act as a drag on economic growth in 2017, which we estimate will come in under 1 per cent.”

Turning to the state of the Government’s finances, Moody’s reminded: “On the fiscal side, Hurricane Matthew led to a loss in government revenue – due to lower economic activity and tax exemptions for reconstruction efforts – and additional current and capital spending.

“This contributed to a deterioration of the fiscal deficit in 2016-2017, in addition to election-related overspending, to an estimated 7 per cent of GDP deficit from a budgeted 1.1 per cent of GDP deficit. This, in turn, led to a continued worsening in the Government’s debt metrics. We estimate that, as of June, the debt-to-GDP ratio was approximately 79 per cent from 67 per cent in 2015-2016.”

With Maria in mind, Moody’s added: “The Bahamas will remain susceptible to hurricanes, which may constrain economic growth and will continue to put pressure on the Government’s fiscal performance. The negative outlook on the sovereign’s ‘Baa3’ rating reflects potential downside risks to the fiscal consolidation process posed by weaker-than-expected growth, exposure to climate-related shocks in the form of hurricanes, and implementation risks associated with measures to rein in expenditure growth and enhance revenues. Absent successful fiscal consolidation, the Bahamas’ fiscal and credit profile would likely weaken.”