Bahamas credit rating lowered one notch to BB-

Bahamas credit rating lowered one notch to BB-

Capital Markets Corporate & Sovereign Strategy Debt Bonds Asset Management Fixed Income Funds Bahamas Coronavirus Credit Ratings Downgrade S&P Global

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S&P Global Ratings on Thursday lowered its sovereign foreign currency credit rating for The Bahamas by one notch to BB- from BB citing weaker than expected economic and financial conditions as a result of the COVID-19 pandemic.

"The country's fiscal reform measures have evolved slowly, and we expect the pandemic will hinder meaningful public finance reform, while large fiscal deficits and a high debt burden increase funding pressures," S&P said in a statement.

A negative outlook means S&P thinks there is a one in three chance the rating could be lowered over the next year if the economic recovery in 2021 is weaker or more prolonged than expected, the firm said.

The Bahamas had little fiscal flexibility because of "sustained budgetary imbalances" and a high debt burden when the pandemic slashed at its tourism-based economy, which accounts for 40% of its gross domestic product. The additional strain of financing large pandemic-related fiscal deficits and existing debt increases risks to its finances, the firm said.

"We have lowered our institutional assessment of the Bahamas due to the political challenge of addressing shortcomings in public finances in an uncertain economic climate over the next one-two years," S&P said.

S&P now expects the economy to show a contraction of 21% in 2020 with a gradual recovery starting in 2021, although it will take several years to reach pre-pandemic levels of activity.

Tourism data shows arrivals, as of July, were down almost 62% in the year-to-date period, the firm said.

"We expect The Bahamas will have a deficit of $1.3 billion in fiscal 2020-2021 (12.4% of GDP), in line with government projections. We expect the change in general government net debt will average 7.1% of GDP during 2020-2023, and 4.9% during 2022-2023," the firm said.

The Bahamas issued a $600 million bond and borrowed an additional $240 million from multilateral lending institutions in the wake of the pandemic. The financial sector's high liquidity diminishes liquidity risks, the firm said. The banking sector represents about 13% of GDP.

"Based on the gross external liabilities of the country's large banking sector, we expect the gross external financial needs of the public and financial sectors will be 352% of current account receipts in 2020, up from about 200% in 2019," S&P said.