Bahamas review for a downgrade says Moodys

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By Eyewitness News

NASSAU, BAHAMAS — Credit ratings agency Moody’s is predicting an eight percent contraction in local economic activity this year due to the COVID-19 fall-out, and has placed the country’s Baa3 rating on review for downgrade.

Moody’s noted that the decision to place The Bahamas’ ratings on review for downgrade “reflects significant risks to its economic and fiscal metrics as a result of the coronavirus outbreak”.

It continued: “The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets.

“For The Bahamas, the shock mainly transmits through the sharp decline and potentially prolonged slump in the tourism industry, which represents a sizable proportion of gross value added in the economy as well as a source of government revenue and export earnings. A likely deep economic contraction, combined with higher fiscal deficits could lead to a permanently higher debt and interest burden that is already elevated relative to Baa3 peers.”

Moody’s noted that the decision to place the ratings on review for downgrade reflects the significant expected decline in economic output in 2020 due to a large shock to the tourism sector.

“Tourism’s direct contribution to Bahamian GDP is close to 20 per cent of the total, while its indirect contribution through other sectors represents another estimated 20 per cent of GDP. As a consequence of the spread of the coronavirus disease, The Bahamas has limited the inflow of visitors, while other countries have also imposed travel bans. In particular, travel restrictions from the United States (origin of over 80 per cent of stopover visitors), as well as Canada and the European Union (origin of seven per cent of stopover visitors each) will lower the inflow of tourists into The Bahamas for several months,” Moody’s said.

It read: “The government has also imposed movement restrictions within its borders so as to contain the spread of the disease among the local population. These developments will weigh significantly on economic activity during the first half of 2020. Consequently, Moody’s now forecasts a contraction in economic activity of about eight per cent this year, compared to an estimate of 0 per cent growth previously.

Moody’s notes that the coronavirus shock is affecting The Bahamas at a time when economic performance had already been hit by Hurricane Dorian in September 2019.