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Sunday, May 2, 2010

The Bahamian economy and living standards shrunk at a rate of 0.3 per cent per annum between 2002-2009 "as a result of its narrow" base

Living standards fell 0.3% per year, 02-09
Tribune Business Editor:

The Bahamian economy and living standards shrunk at a rate of 0.3 per cent per annum between 2002-2009 "as a result of its narrow" base, a Wall Street credit rating agency has concluded, while surprisingly questioning whether the Bahamas Telecommunications Company's (BTC) privatisation process had been "postponed" yet again.

Standard & Poor's (S&P), in its full country report on the Bahamas' sovereign credit rating that was released this week and obtained by Tribune Business, raised questions about whether the 2002-2007 period - described as 'years of plenty' by the then-governing Christie administration - actually delivered the major increase in salaries/living standards for most Bahamians that it was supposed to have done.

Placing the Bahamas' short-term sovereign credit rating at 'BBB+', down from the previous 'A-2', S&P said: "The Bahamian economy contracted by an average of 0.3 per cent per year on a capita basis from 2002-2009 as a result of its narrow economy and close economic ties to the US.

"This lags the growth rates of most peers, and is less than the 'BBB' median average of 3.7 per cent growth. The weaker performance results from several factors. These include the adverse weather conditions that the Bahamas, like other Caribbean islands, is susceptible to; a lacklustre tourism arrival performance over the past few years; greater competition in the tourism industry; and the global recession in 2008-2009. Medium terms prospects remain subdued."

Data released by S&P reveals that the Bahamas' GDP per capita, or income per person, has been impacted heavily by the global recession, having not increased much during the Christie administration.

While GDP per capita rose from $22,223 in 2006 to $22,577 in 2007, the onset of the global financial crisis saw it fall back to $22,465 in 2008, followed by a further contraction to $21,449 in 2009. Bahamian GDP per capita is predicted to 'bottom out' this year at $21,433, before rising to $22,099 in 2011 and $22,559 in 2012.

Meanwhile, S&P's analysis raised questions as to whether it knew something the rest of the Bahamas did not on the status of the BTC privatisation process.

The Wall Street credit rating agency said: "The Government hoped to receive $200-$300 million in proceeds from the sale of a 51 per cent stake in BTC in the first half of 2010 to alleviate financing needs.

"However, the Government has once again postponed the privatisation following seeming disappointment with the bids and prices offered at the end of 2009. Plans have existed to sell BTC since the first Ingraham government, and when it took office again in 2007, it cancelled the sale of BTC to Bluewater Communications, which the previous administration had arranged."

BTC's "postponed" statement is at odds with the Government-appointed privatisation committee's recent assertion that 'due diligence' on the prospective bidders was continuing.

Zhivargo Laing, minister of state for finance, who heads the advisory committee overseeing the process, could not be reached for comment before press deadline. And nor could T. B. Donaldson, chair of the privatisation committee, or Julian Francis, BTC's chairman, despite messages being left.

It appears likely that S&P may have got it slightly wrong, and that privatisation is not 'postponed'. It may, though, have been delayed, as the protracted seven-month 'due diligence' period indicates that the Government may indeed have not received the quality of offers and prices it was hoping for, and has possibly engaged in talks with one or more bidders.

Those invited through to the due diligence round included J. P. Morgan/Vodafone; Atlantic Tele-Network/CFAL; Trilogy International Partners; and Digicel. Tribune Business last week heard whispers that both Digicel and J. P. Morgan/Vodafone were no longer interested, which would be a surprise in the latter's case, given that it was a frontrunner.

Those rumours have not been confirmed, though, and nor has speculation of a $130 million purchase price for 51 per cent of BTC.

Elsewhere, S&P reported that foreign direct investment, so crucial to the Bahamian economy and its foreign currency earnings/reserves, was likely to decline even further in 2010 compared to last year.

"Traditionally, foreign direct investment has financed a large part of the current account deficit," S&P said. "From 2005-2008, foreign direct investment financed almost two-thirds of the current account deficit.

"In the first three quarters of 2009, foreign direct investment inflows were greater than the current account deficit. However, we believe that in 2010 and over the following years, foreign direct investment will not fully finance the deficit.

"Foreign direct investment totalled $600 million during the first nine months of 2009, compared with $1 billion in full-year 2008. We expect foreign direct investment to slow further in 2010 as tourism projects progress slowly."

And while international reserves grew to $825 million in 2009 compared to $563 million at year-end 2008, they received a "particular boost" in the 2009 second half from the Government's $300 million foreign currency bond, coupled with $178.7 million in 'special drawing rights' from the International Monetary Fund (IMF).

In addition, S&P said analysis of the Bahamas' current account deficit financing was complicated by the "presence of persistently large positive errors and omissions", which were 24 per cent and 85 per cent of the current account deficit in 2007 and 2004 respectively.

April 30, 2010