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Ministry of Finance: Moody’s move ‘not unexpected’ given fiscal position

  • Moody’s headquarters in New York City.

XIAN SMITH
Guardian Business Reporter
xian@nasguard.com

Published: Jul 14, 2017

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Almost a week after international credit rating agency Moody’s announced that it placed The Bahamas’ credit rating on review for downgrade, the Ministry of Finance (MOF) responded in a statement Wednesday night, stating that the move was “not unexpected” given the country’s “undesirable” fiscal position.

It noted that the decision by Moody’s to place the country's ratings on review was prompted by a "weaker than previously estimated" fiscal position and that the government's debt ratios would "continue to worsen over the coming years".

“While this review is an unfortunate development, it serves to underscore the imperative of taking decisive and timely measures to secure the fiscal health of The Bahamas and, by extension, the future welfare of all Bahamians,” the statement points out.

During the budget presentation, the government announced that the fiscal deficit was projected to land at $500 million at the end of last month. In addition, the government also announced that it intends to borrow a combined $722 million to cover the deficit left by the Christie administration and finance its commitments in the current fiscal year.

The MOF statement also indicated that the government is working towards fiscal reform through regulation to help arrest the present fiscal state.

Minister of Finance Peter Turnquest said earlier this week that the government is already working on legislation to help promote fiscal responsibility.

"We already have drafts of these bits of legislation that we want to put forward. As soon as we have Cabinet meetings to review them, we intend to send them out for comment and wide circulation for feedback.”

The statement pointed out that the government “is moving expeditiously to address the fiscal situation, which has given rise to this credit rating review exercise and possible downgrade”.

“These steps include the planned introduction of fiscal responsibility legislation, new procurement regulations and a comprehensive public expenditure review, with the objective of achieving savings and ensuring consistency with the government’s policy priorities.”

The statement also acknowledged Moody’s mention of the potential fiscal challenges associated with weather-related events.

“The Bahamas' susceptibility to climate-related events such as hurricanes also increases the risks of fiscal slippage, as was the case in 2015 and 2016,” said Moody’s.

However, the Ministry of Finance said, “Work on all of these areas has commenced and the results are expected before the end of this fiscal year.”

The government also intends to improve the effectiveness of revenue initiatives. This move, accompanied by a reduction in spending, would help to increase the government’s revenue base. "While the introduction of a value-added tax has contributed significantly to bolstering the government's revenue base, curbing expenditures remains challenging,” said Moody’s.

Nevertheless, the MOF stated, “The government’s efforts to strengthen revenue administration are receiving renewed focus, especially in the areas of real property taxes, customs, VAT and business license administration and enforcement.

“Their effectiveness will be reinforced by the government’s plan to introduce a revenue administration bill, to enhance the mechanisms available for dealing with tax delinquencies.”

The government will also “tackle the challenges” related to economic growth. To do so, it will look at improving the ease of doing business, addressing structural impediments to growth and attracting foreign direct investment that has a “demonstrably positive “impact on the economy, according to the statement.

Turnquest recently said the government’s overall growth strategy is underway. The Bahamian economy has not grown in the past four years.

 

 

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