Prime Minister Hubert Ingraham's government has promised to ramp up spending to help keep the economy moving following a recent decision by international ratings agency Standard & Poor's (S&P) to downgrade its outlook for the Bahamas.
On November 24, S&P released its latest assessment, warning that rapidly slowing economic growth and concerns about bleaker tourism, investment and consumer demand throughout 2008 and 2009 meant that the short-term outlook for the economy would be rated as negative.
"Weak external liquidity and constrained fiscal flexibility further limit the Bahamas' ability to withstand downturn, as the US struggles with a credit crunch, rising costs of food and other goods and a drop in home values," the report said.
The weakening of the American economy has had a direct effect on the Bahamas, as the country is heavily dependent on the US for investment, trade and tourism, S&P said. Indeed, the report echoes the prime minister's warning on November 10 that tourism numbers could fall by 6% this year. According to the report, 87% of all overseas visitors to the Bahamas come from the US, with the tourism industry accounting for more than 60% of local Gross Domestic Product (GDP) and providing employment to more than 50% of the Bahamian workforce.
However, the report did say the outlook for the Bahamas would be revised back to stable if planned measures to boost the economy were successful, as the government has announced it will institute new unemployment benefits, a capital-spending plan and relief to low-income households.
Brent Symonette, deputy prime minister and minister of foreign affairs, told OBG, "The main priority for 2009 will be to see where the global financial crisis will take the Bahamas. ... Economic indicators are stable and foreign reserves are high, but obviously we are monitoring this closely and maintaining government expenditure within the parameters."
S&P also revised its forecast for GDP growth to 1.1% for this year and 1% in 2009, down from its earlier predictions of 3% and 4%, respectively.
Minister of State for Finance Zhivargo Laing emphasised that the downgrade was as much a reflection of the global economy as it was of the Bahamas' recent macroeconomic performance, though he did not dispute the accuracy of the agency's assessment.
"Given the economic plight, given what we know to be our own kind of experience in light of what has happened all around the world, it is not surprising that Standard and Poor's would take that approach," he told local media on November 25.
James Smith, former finance minister, emphasised that though the economic outlook had been downgraded, S&P had kept the Bahamas' credit rating at a grade of A-, the same as last year.
"What they are saying is that the country's fiscal and economic policies are still fundamentally sound," Smith told the local press. "The country would be hurt if we were going to borrow money in the credit markets and if they had dropped us from A- to a B or something like that, where we would have to pay more in interest rates."
But even if forced to seek loans, the Bahamas will be able to act from a position of relative strength, with its public external debt / GDP ratio running at an estimated 5.1% at the end of 2007 according to the International Monetary Fund (IMF), one of the lowest levels in the Caribbean region.