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Financial outlook downgraded.

FINANCIAL OUTLOOK DOWNGRADED. Wall Street dealt another blow to The Bahamas by revising the financial outlook from stable to negative, insisting that the government's fiscal profile continues to weaken, reports The Nassau Guardian (Sept. 26, 2012):

Standard & Poor's (S&P) issued a warning that a downgrade could occur if the Progressive Liberal Party (PLP) administration fails to craft a mediumterm plan to reign in the country's rising debt. For now, S&P affirmed its "BBB/A-2" sovereign credit rating and "BBB+" transfer and convertibility assessment. "The government deficit, instead of peaking and starting to decline, rose even further in the fiscal year ended June 2012," the report said. "Capital expenditure cost overruns (especially on the New Providence roads project) and continued sluggish growth in recurrent revenue pushed the government deficit to an estimated more than 7% of GDP";

S&P added that it considered $86 million in capital revenue as "below-the-line" deficit financing. This warning S&P could be a precursor to another downgrade. Last November, it downgraded the country's sovereign credit rating for the second time in two years, with long-term credit declining from "BBB+" to "BBB". One of the more controversial new programs is the Mortgage Relief Plan, which attracted negative attention from Moody's;

That program is expected to be capped at about $10 million. The new government has also engaged the Bahamas Telecommunications Co. (BTC) in negotiations to "buy back" a majority stake from Cable & Wireless Communications (CWC). Top among the concerns of S&P is the persistent problem with economic diversification and new streams of revenue. The absence of income tax or value-added tax creates a "comparatively low and narrow revenue base".
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Title Annotation:BAHAMAS
Publication:Caribbean Update
Date:Nov 1, 2012
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