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Bahamas Outlook Positive, Says S And P

by Leroy Baker,, New York

06 August 2007

Standard & Poor's (S&P) Ratings Services has announced that it has revised its outlook on its long-term sovereign credit rating on the Bahamas to positive from stable, reflecting the jurisdiction's macroeconomic stability, prudent fiscal policies, and steady monetary stance.

"The island's currency peg to the US dollar, in effect since 1973, ensures low inflation, while generally disciplined fiscal management has led to only moderate accumulation of government debt," said credit analyst Olga Kalinina. "The Bahamas' political environment is stable, and its standard of living is high. Public sector external debt is low and declining, with net external assets at 8% of current account receipts in 2007."

According to S&P, a massive influx of investment into tourism related projects will ensure that economic growth will stabilise at about 4% over the next three to five years.

With revenues growing and expenditure in check, S&P anticipates that the government debt will have fallen by 3% to 35% of GDP in 2010. However, the agency said that the open nature of the Bahamas economy means that these projections remain vulnerable to external economic shocks and extreme weather events.

"While widening external current account deficits currently reflect high import requirements and temporarily dislocated tourism capacities, Standard & Poor's believes that prudent monetary management and solid FDI inflows should support the relative stability of international reserves. Similarly, the commitment to a disciplined fiscal stance should mitigate possible capital spending pressures and ensure a gradual decline in debt ratios," noted Mrs Kalinina.

"An upgrade will be considered as the first signs of a positive, sustainable trickle-down effect of these new investments emerge in the fiscal and external accounts. On the other hand, should such improvement be hindered either externally (e.g., weather-related or negative world tourism dynamics) or domestically (e.g., relaxation of the policy stance or a slower-than-expected pace of project implementation), the outlook will be revised back to stable," she concluded.

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