By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government last night hailed the first positive outlook for The Bahamas’ creditworthiness in more than 17 years as a sign that the country is “regaining its financial footing” amid global economic turmoil.

The Prime Minister’s Office, in a statement attributing Moody’s decision to upgrade The Bahamas’ outlook from ‘stable’ to ‘positive’ as being driven by its post-COVID fiscal consolidation work, was nevertheless careful not to over-sell the move’s impact by describing it as “a step forward, not a finish line”.

For while the ‘positive’ outlook holds out hope that Moody’s may upgrade The Bahamas’ sovereign credit rating within the next to 12 months, it does mean such an improvement is guaranteed. And, with the global credit rating agency maintaining this nation’s actual long-term issuer and unsecured rating at B1, The Bahamas still remains marooned in so-called ‘junk’ territory some four notches below investment grade status.

The Davis administration asserted that the ‘positive’ outlook from Moody’s is the first time that The Bahamas has gained such status since Standard & Poor’s (S&P) gave a similar prognosis in 2007 just before the following year’s global recession and local economic contraction.

And, while Moody’s move represents a positive development - particularly in the present climate of global economic chaos, volatility and uncertainty caused by US trade and tariff policies - the assessment that accompanied the improved outlook projected that the increased Budget surpluses and debt ratio reductions forecast by the Government will take longer to emerge than it is predicting.

For instance, while the Government is forecasting primary surpluses equal to 3.9 percent and 6.4 percent of Bahamian economic output in the 2024-2025 and 2025-2026 fiscal years, Moody’s is instead projecting that - while revenues will indeed exceed recurrent spending once debt interest payments are stripped out - these surpluses will be 3.2 percent and 4.5 percent of gross domestic product (GDP).

And, while the Davis administration is predicting that central government debt as a percentage of economic output (GDP) will decline to 76 percent at end-June 2025, and fall further to 60.4 percent at the close of the 2027-2028 fiscal year, Moody’s is forecasting a slower pace of fiscal consolidation. It only says that The Bahamas’ debt-to-GDP ratio will be “below 70 percent” come the end of fiscal year 2028.

The credit rating agency, while agreeing that continued fiscal improvements will ease this burden, also pointed out that the Government’s gross financing needs are equal to 20 percent or one-fifth of GDP this fiscal year. These needs, it added, will remain “elevated” with the Government needed to refinance or roll over one-third of its Bahamian dollar debt on an annual basis - increasing the risk investors may demand payout.

Still, in a nod to present stock market and global financial turmoil, Moody’s said this is “unlikely” to cause a major negative fiscal impact for The Bahamas even if it lasts for some time. “The change in outlook to ‘positive’ reflects the increased likelihood that fiscal consolidation will strengthen The Bahamas’ credit profile over time,” Moody’s said of the rationale for yesterday’s outlook improvement. 

“The Government has already implemented a substantial fiscal adjustment, and their commitment to maintain large primary surpluses thanks to revenue-enhancing reforms increases our confidence that debt will remain on a downward trend - below 70 percent of GDP by 2028 from 76 percent in 2024.

“In turn, lower borrowing requirements - driven by smaller net fiscal financing needs – would reduce government liquidity risk. The Bahamas’ positive fiscal and liquidity developments are unlikely to be significantly affected by a period of global financial markets volatility.”

Pointing to what it described as a “growing track record of fiscal consolidation”, Moody’s added: “The Bahamas has demonstrated meaningful fiscal consolidation over the past two years, with the primary balance shifting to a surplus of 2.9 percent of GDP in fiscal year 2024 from a deficit of 1.4 percent of GDP in fiscal 2022.

“This improvement reflects a reduction in pandemic-related spending, increased revenue associated with the recovery in tourism as well as improved tax compliance. We expect the Government’s commitment to fiscal consolidation to ensure government debt remains on a downward trend.

“We expect the primary surplus to increase to 4.5 percent of GDP in fiscal 2026, up from 3.2 percent of GDP in fiscal 2025, driven by higher revenue collection and discipline on the expenditure side,” Moody’s added.

“The improvement in the primary balance that we forecast incorporates continued efforts to enhance tax compliance and additional revenue from the introduction of a 15 percent Qualified Domestic Minimum Top-Up Tax (QDMTT) on large multinational corporations operating in The Bahamas. We expect approximately 1 percent of GDP in additional revenue from the QDMTT beginning in fiscal 2026.”

That refers to the imposition of corporate income tax on Bahamas-based entities who are part of multinational groups with annual turnover exceeding 750m euros. Turning to The Bahamas’ national debt situation, Moody’s said: “In the absence of future shocks, primary surpluses of this size would reduce the debt-to-GDP ratio to 76 percent at the end of fiscal 2025, and below 70 percent by 2028.

“The combination of higher revenue and a declining debt burden will improve The Bahamas’ weak debt affordability gradually over time. We expect the interest-to-revenue ratio to improve to 19.4 percent in fiscal 2025, down from a peak of 22 percent in fiscal 2021. However, even with the improvement in The Bahamas’ fiscal strength that we forecast, debt burden and debt affordability will remain weaker than similarly-rated peers.”

The Prime Minister’s Office, careful not to get too carried away, conceded that - while Moody’s assessment signalled “growing global confidence” in The Bahamas and its economic prospects - too many persons are “still under pressure” from a cost of living that remains “too high”.

“For the first time in almost 20 years, an international credit ratings agency has given The Bahamas a ‘positive’ outlook on our sovereign credit rating, signaling growing global confidence in the direction of our economy,” it said.

“When we took office in September 2021, The Bahamas was facing some of the toughest economic conditions in living memory. Our debt burden was high, government finances were stretched thin, and the country was still reeling from the combined effects of a global pandemic [and] Hurricane Dorian...

“We made a commitment to the Bahamian people that we would bring stability, restore credibility and build a stronger, fairer economy. That meant making hard decisions and pursuing real reform - not just patchwork solutions, but long-term fixes,” the Prime Minister’s Office added.

“Today, international credit ratings agency Moody’s recognised the progress we’ve made by changing The Bahamas’ outlook from stable to positive. They’ve acknowledged that our fiscal plan is working: Debt is falling, the economy is growing and we’re on track to reduce our debt-to-GDP ratio below 70 percent by 2028.

“They’ve taken note of our return to a [primary] Budget surplus and our structural reforms to strengthen revenue and control spending. This is welcome news. It tells the world that The Bahamas is regaining its financial footing and that the work we are doing is credible and impactful.....Today’s news is a step forward, not a finish line.”

Moody’s made no mention of the Government’s $400m-plus deficit for the first seven months of the 2024-2025 fiscal year, and the increasing difficulty it is likely to have in hitting its projected $69.8m full-year target. However, the Prime Minister Philip Davis KC focused on energy reform as the key element in its strategy to further lower costs for households and businesses plus increase economic competitiveness.

“I know Bahamians are still under pressure. The cost of living is too high. Too many are still looking for reliable opportunities. Some communities are still waiting for the basic services they deserve,” he reassured.

“That is why, even while we stabilise our finances, we are taking on the next big challenge: We are undertaking the largest energy reform in our country’s history. This includes major investments in renewable energy, modernising outdated infrastructure, and reducing the cost and unreliability of power for Bahamian families and businesses.

“We know that no economy can thrive with high electricity bills and frequent blackouts. We are determined to fix this, and fix it the right way. These reforms won’t happen overnight, but we are laying the foundation now so that future generations inherit a cleaner, cheaper and more resilient energy system,” Mr Davis added.

“This moment calls for balance. We must be disciplined in our finances, ambitious in our reforms and compassionate in our leadership. We’ve come a long way. But we still have work to do, and we will not stop until progress is felt in every home, on every island, for every Bahamian.”