A leading banker said yesterday that there was no sign that international capital markets would agree with a Caribbean economist that a default on Bahamian sovereign debt is imminent.
Gowon Bowe, managing director of Fidelity Bank (Bahamas), told Tribune Business that the Bahamas’ “Ba3” credit rating was still above “C” territory where most defaults occur while credit card holders The country’s bonds gave “no immediate sense of panic” or a sign of a sale is near.
It pushed back after Marla Dukharan, the former Royal Bank of Canada (RBC) chief economist for the Caribbean, doubled down on her previous prediction by reaffirming in her monthly newsletter that a Bahamian sovereign debt restructuring program and International Monetary Fund (IMF) adjustment occur over the next two years.
“We expect a debt restructuring and an IMF program in a year or two,” she said. “In June-July 2021, stays (stopover visitors) reached 72% of the corresponding levels of 2019. Public debt reached 10.356 billion dollars at the end of June 2021, up 16% year-on-year.
“External debt rose 44% year-on-year in July 2021 to reach $ 4.36 billion, boosting international reserves. a [IMF] The Special Drawing Rights (SDR) allocation of $ 174.8 million added approximately $ 247.5 million to international reserves in August 2021. International reserves stood at $ 2.61 billion in July 2021 , up 32 year-over-year, with usable reserves of $ 1.31 billion.
While the Bahamas is certainly heading for an IMF adjustment program and debt default if it fails to quickly change course and cut government borrowing, it has yet to happen. And Mr Bowe argued that Ms Dukharan’s assessment was based on a static theoretical model that did not allow for changes in government policy that could prevent such a catastrophic outcome.
“I am not dismissive,” the head of Fidelity told this newspaper of Ms. Dukharan’s claims, “but it is often too theoretical and ignores political actions which, if not taken, could lead to these results. There are a few things the government and knowledgeable people need to refute. “
Mr Bowe said a default occurred when the government was unable to repay its debt or repay a maturing issue, but added that Ms Dukharan had not identified a such “trigger event”. He added, “Our credit rating is not where there is a high probability default. Until we get into “C” territory, we don’t go into a high probability of default. “
The PM has previously suggested his administration would seek to restructure and renegotiate Bahamian debt should the opportunity arise, extending the maturities of existing bond issues and lowering associated interest rates to ease the burden on Bahamian taxpayers. . Ms Dukharan’s prediction last year that the Bahamas would experience a balance of payments crisis and the IMF’s initiative within 12 months also failed to materialize.
However, Mr Bowe conceded that the Bahamas “leaves us exposed” because they lack the national statistics and tax plans that offer “another story to present” to outside observers. “We need to make it clear that these are the policies that our administration is going to adopt more comprehensively because observers, especially lenders and creditors, are looking at how policies work,” he added.
Noting that current Bahamian sovereign debt yields and interest rates show “no sense of panic or liquidation” among investors, Mr Bowe said: “We do not see them taking into account the risk of fault. People who have money in the risk don’t price a default instantly.
“We need to disseminate better information in the public domain regarding statistics and policy actions. We are talking about the first 100 days of a government, and what is going to be essential is an action plan that is developed on how we approach the debt-to-GDP ratio and the deficit.
“As a country, we need to stay calm and not seek to respond to individuals, but respond appropriately to markets and international observers. The better the answer, the better the price and the better the result. “
As a “low-tax jurisdiction,” Bowe argued that the Bahamas still had several options to avoid default. Apart from new taxes and / or tax increases, freezing public sector hires and salaries remains an option, while the sale of public assets and public-private partnerships (PPP) remain an option.
“There are government assets available for sale of which there is no inventory,” he said. “Once we have an appropriate list of government assets, they can be sold to domestic investors.
“Our conversation must focus on the political actions developed over the next 18 months. The next budget should cover 18 months. Concentrating from January to June will be a futile exercise; we need to focus on the next 18 months.