S&P Cuts Bahamas' Credit Rating

By Glen Shapiro, LawAndTax-News.com, New York

04 January 2010

Credit rating agency Standard and Poor’s (S&P) has cut the Bahamas’ long-term sovereign credit rating by one notch to BBB+, or three notches into investment-grade territory.

The report noted that the ratings outlook is stable as a result of fiscal measures implemented by the government to mitigate increases in debt. S&P further observed that the Bahamas had been vulnerable to the onset of the economic crisis due to its dependence on taxes on international trade and transactions, which account for more than 50% of tax revenue.

The report accredited the credit rating downgrade to falling revenues, expected to deteriorate further during the current fiscal year, having fallen 9.2% in the fiscal year ending June 2009.

"The downgrade reflects the Bahamas' weakened fiscal profile. Its debt and deficits have increased. In addition, following three years of economic contraction, the Bahamas' growth prospects beginning in 2011 are modest,” the report said.

According to the report, state debt has increased significantly to 30% of GDP, from 22% of GDP in 2008, and is expected to increase to between 35% and 39% by 2012.

The agency, however, did project that the economy would recover in 2011, with growth of around 2% of GDP, following a contraction of 0.5% of GDP in 2010, and 4% of GDP in 2009. In particular, S&P observed that the territory’s economy would be bolstered by tourism from the United States.

Recommended