By MARTELLA MATTHEWS Guardian Staff Reporter martella@nasguard.com

The Bahamas' economic outlook is stable but the Government's response to international regulatory initiatives and trade liberalisation as it seeks World Trade Organisation membership, could affect its future credit rating, according to Moody's Investor Service.

The Bahamas currently has observer status in the WTO.

According to Minister of Trade and Industry, Leslie Miller, the Government is currently preparing the country's documents for submission, which should take place early next year.

On his return from the Fifth Ministerial Conference in Cancun, Mexico earlier this month, Mr. Miller said that he was advised by WTO officials to "tread very carefully", and to be more than cautious in preparing the country's documents. To this end, the government intends to enlist the help of a WTO official to assist in the preparation of the document, Mr. Miller said.

The international ratings agency gave The Bahamas an issuer rating for foreign currency debt and bonds of A3 and a rating of A1 for domestic currency debt and bonds. The offshore banking sector currency ceiling was given Aaa rating for foreign currency debt and bank deposits.

The overall stable outlook given to the country was credited to particular strengths outlined as: Low external debts and debts service levels; a competitive tourism sector; prudent macroeconomic management and proximity to economic integration with the United States.

Major challenges facing the country were listed as including: A narrow economic base; a high degree of sensitivity to external developments, and limited fiscal flexibility.

According to the report, reigning in the fiscal deficit and improving the public sector debt position could push The Bahamas' rating up. Improving the resiliency of the tourism industry to changing external conditions was also listed as a move that could result in a higher rating.

The report revealed that given the narrow revenue base, any significant increase in Government debt would be difficult to sustain; this and any slippage in the regulation of financial services would be viewed by the agency as negative and could lead to the rating being adjusted downwards.

The agency noted that the widening budget deficit has pushed public sector debt above 40 per cent of GDP, and although the national debt level is consistent with that of similarly-rated countries, the narrow revenue base of The Bahamas Government suggests a fairly high debt revenue ratio.

The Central Bank was credited for its imposition of credit controls immediately after Sept. 11. This move was seen as being responsible for the consequential boost in exchange reserves over the past two years. Exchange controls on capital transactions were also reported to have insulated The Bahamas from external shocks and prevented a buildup of potentially destabilizing resident foreign currency deposits in the banking system.

Foreign reserves have remained high relative to debt and debt payments, the report said.

According to the report, the underlying strengths of The Bahamas and its strong external position support a stable outlook despite potential challenges that could arise as a result of adverse affects on the tourism sector or other geopolitical uncertainties.

Posted Wednesday October 1, 2003