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Edwards: Still much work to do despite S&P good news

While Standard and Poor’s (S&P) most recent report on The Bahamas has been viewed as positive, according to Managing Consultant of Next Level Solutions Hubert Edwards, it should also be celebrated “with caution”.

“A careful assessment of the underlying findings invites deeper consideration than the outlook stated, and confirms the consistent call for serious reforms, fiscal and otherwise,” said Edwards.

“The indications are that over the next two to three years there will not be any significant change to the country’s credit profile unless there is the emergence of some significant economic growth.”

Edwards pointed to the S&P’s projection that the country’s growth rate will revert to historical levels of about 1.8 percent next year. He said this reality should open the eyes of policymakers to the types of polices they should begin to draft in order to move the country away from any of the downside risks to the economy outlined by S&P.

“Faced with limited growth and underlying credit vulnerabilities, the report ought to signal to policymakers the direction for policy shifts,” Edwards said.

“The assessment must be considered against the backdrop that S&P has no expectation of significant public sector finance reform; concluded that the country is facing significant rollover risk; and that there is unlikely to be any material institutional changes.

“While there is every expectation that the government will be able to meet its funding requirements, as was noted in the budget communication, credit enhancements and multilateral lending will be the only source with a full avoidance of the bond market.

“This is indicative of prevailing creditworthiness pressures. While S&P has maintained a ‘stable’ outlook, the commentary around that conclusion seems to suggest that if not for the significant credit pressures, a ‘positive’ outlook could have been achieved. This is indeed noteworthy and should not be overlooked.”

Edwards said he has pointed out on several occasions that the country continues to face burdensome interest payment obligations over the next two to three years, while being slow to implement reforms to reduce expenditure despite “the limited scope of the government in raising revenue”.

He said, though, that the current administration should be acknowledged for effectively “holding things together”.

He warned that there still remains an urgent need for reforms.

“The factors which are taken into account in the [S&P] assessment are rated on a scale of one to six, with one being the strongest,” said Edwards.

“S&P accorded a rating of either four or six in each of the six instances [regarding The Bahamas].

“Overall, therefore, it will be useful to absorb the positives from the report, but we must pay very careful attention to the underlying areas of weaknesses highlighted.

“We are mindful that this assessment would not have benefitted from programs and initiatives that have been recently started or are underway. We are further cognizant that certain policy positions which have been foreshadowed, if properly implemented, could have some positive impact on economic growth.

“The totality of the report, however, suggests that there is significant work to be done, and the country, over the next two to three years, is likely to be faced with important headwinds largely created by the deficiency in structural reforms and pressures by credit realities.”