The downgrade by Moody’s will adversely affect the efforts underway to bounce back from the debilitating effects of the pandemic and global financial crisis. We should however readily understand and accept that the main driver of this decision is the country’s debt circumstance. This aspect of our fiscal realities is difficult to change quickly. Consequently, policy makers must ensure that steps to improve the long-term potential of the country are taken. Ultimately, sustained above average growth, and the attendant increase in government revenue, is the most viable means to address this.
The incidence of downgrades is becoming an almost annual affair, which creates significant uncertainty and disruption for the economy. Having regard for Moody’s improved outlook, from negative to stable; the reported performance of fiscal revenue; and the narrowing of the deficit, it is my view that the country should this time seek to take away a deeper message than in the past. The fixes that will secure sustainable outcomes lie in implementing fundamental reforms across a number of critical segment of the economy and institutions.
Moody’s stated basis for a future upgrade is instructive. The country will secured and upgrade if there is “a demonstrated ability to access sufficiently diverse funding, which supports an improvement in debt affordability and reduces rollover risk”. These are all issues that the debt management strategy speaks to and therefore effective implementation with any requisite adjustments should become a central focus of the government. Fundamentally, therefore the ability to realise positive outcomes from efforts to create a better understanding in the credit market will be crucial. Unfortunately, the downgrade has arguably made this that more difficult.
Moody’s also noted that “implementation of fiscal and economic policies that support a fiscal consolidation process and place government debt on a more durable downward trajectory would, also put upward pressure on the rating”. Currently, the scope for achieving this is arguably very limited. This could force the administration into examining more urgently less desirable options.
It is my view that in response to this downgrade a different approach from the past should be taken. Given the very serious constraints, this downgrade should be used as an impetus to urgently drive reforms that will secure improvements in the country’s mid to long-term growth potential, as recently pointed put by the Governor of the Central Bank.
Greater focus should be placed on addressing structural impediments, with a view of creating momentum toward a deeper level of resiliency in the economy. The Administration should leverage the narrowness of the options available to initiate a wholesome national discussion examining choices while restating plans and initiatives to secure growth.
Going into 2024, the economy will return to its normal rate of growth. This represents a significant policy burden worthy of urgent and focused attention. The mistakes of the past should not be repeated. After previous crises the USA, our closest and largest trading partner, and the global economy, experienced robust growth while the economy trailed in performance.
As the government focuses on all viable short-term solutions, it must simultaneously seek to “rev up the engine” to create momentum, ensuring that the country is well placed to take advantage of positive improvements in the global economy which will eventually come.
Hubert Edwards is the Principal of Next Level Solutions Limited (NLS), a management consultancy firm. He can be reached at info@nlsolustionsbahamas.com. Hubert specializes in governance, risk and compliance (GRC), Accounting and Finance. NLS provides services in the areas of enterprise risk management, internal audit and policy and procedures development, regulatory consulting, anti-money laundering, accounting and strategic planning. He also chairs the Organization for Responsible Governance’s (ORG) Economic Development Committee. This and other articles are available at www.nlsolutionsbahamas.com
Hubert Edwards is the Principal of Next Level Solutions Limited (NLS), a management consultancy firm. He can be reached at info@nlsolustionsbahamas.com. Hubert specializes in governance, risk and compliance (GRC), Accounting and Finance. NLS provides services in the areas of enterprise risk management, internal audit and policy and procedures development, regulatory consulting, anti-money laundering, accounting and strategic planning. He also chairs the Organization for Responsible Governance’s (ORG) Economic Development Committee. This and other articles are available at www.nlsolutionsbahamas.com