Weekly Report - 1 July 2003

The rating agency Moody's has downgraded the rating outlook for the Bahamas from 'positive' to merely 'stable' in light of the ongoing drag on the local economy caused primarily by a sluggish tourism industry. At the time, Moody's also affirmed the government's A3 rating for foreign currency bonds and notes. 

The Bahamas' highly open economy allows the country to benefit from favourable external conditions, says Moody's, but it also introduces vulnerabilities in an adverse global environment. The 11 September 2001 attacks on the US, the continuing threat of terrorism, and geopolitical uncertainties have placed exceptional pressures on the national economy through the tourism sector, says the rating agency. 

While showing some signs of recovery, the tourism industry has yet to return to a healthy growth path, says Moody's. The weak economic activity of recent years has also reversed favourable fiscal trends, shifting the budget into moderate deficits from a nearly balanced position and raising government debt relative to budgetary revenues and GDP. 

Despite these new challenges, the credit fundamentals of the Bahamas remain supportive of the government's A3 foreign currency rating, and the Bahamas' fiscal and external indicators are well positioned compared with the country's peers, says the rating agency. 

Moody's says it expects that the current government will be able to maintain the previous government's track record of prudent economic policies and that the Bahamian economy, and its tourism industry, will maintain its underlying competitiveness.