Above: Nassau (CJ Photo)

By the Caribbean Journal staff

Standard & Poor’s affirmed its “BBB/A-2” sovereign credit rating on the Bahamas on Tuesday, the New York-based firm announced.

The outlook on the Bahamas’ long-term credit rating remains negative, however

The outlook was revised to negative in September 2012; S&P said it reflected the “challenges of low growth and revenue buoyancy.”

While the country’s government deficit rose as a share of GDP in the fiscal year that ended in June, the firm said the Bahamas’ government had taken steps to contain expenditure, holding back spending in nominal terms.

But low growth led to a decline in revenues in nominal terms, the firm said, meaning the deficit widened to over 6 percent of GDP.

“The government’s budget for the fiscal year ending June 2014 includes a number of measures to raise revenue
and reduce the deficit,” S&P said. “They include various increases in taxes and fees, as well as a strengthening of customs and property tax administration. Assuming continued expenditure restraint, we expect the deficit to decline to a still-high 5.4% of GDP in fiscal 2013-2014, and we expect debt to increase further.”

The firm also addressed the planned introduction of a Value-Added Tax in the Bahamas, saying it would yield “important new revenue,” something that, coupled with constrained spending, “could stem the rise in the general government debt trajectory and
improve The Bahamas’ fiscal indicators.”

And while the firm praised the Bahamas’ high GDP, it said the country’s “significant dependence on tourism and the US market was “a vulnerability to the economy.”

“Tourism accounts for more than 50% of the Bahamas’ GDP and employs more than 50% of the labor force, and US tourists account for more than 80 percent of The Bahamas’ total tourists,” the firm said. “As a result, the Bahamas’ real per capita GDP has averaged below that of its peers.”

The firm projected growth of 1.7 percent in 2013 and 2 percent in 2014, following 1.8 percent growth in 2012.

It also said the scheduled opening of the Baha Mar in 2014 should support growth in 2015.