The Bahamas is showing signs of increased economic risk due to a rising government deficit

The Bahamas, rated A3 by Moody’s, BBB by S&P and unrated by Fitch is on course to retain the position of the Caribbean’s safest economy, according to ECR analysts, despite a strong downturn in tourism – the country’s biggest industry, which accounts for 40% of the country’s GDP. The Bahamas currently ranks amongst the highest of the Caribbean nations and 51st globally in ECR’s rankings. The country’s ECR rank remains unchanged from Q1 2012 but has slipped five places since June 2011. ECR analysts have lowered the sovereign’s ECR score by 3.9 points since June 2011, to 56.5 in August 2012, suggesting that the economic downturn has weighed significantly on its risk assessment since then. The risk assessment of Bahamas is unusual in that there is a wide disparity between its political and economic assessment scores. In August 2012, the Bahamas political assessment score was 24 points more than its economic assessment score, while its structural assessment score was 11 points ahead of its economic score.

Source: ECR

A stable democratic system and a strong legal system based on English common law account for the sovereign’s relatively strong position on ECR’s political assessment table. All of the country’s political sub-factors scores have remained unchanged since Q1 2012, with the country’s institutional risk and information access/transparency indicators remaining the strongest. On the other hand the Bahamas economic assessment score remains fragile, with a score of 39.5 (out of 100), leaving the sovereign ranked fourth for economic assessment in the Caribbean behind Trinidad and Tobago, Cuba and Haiti. Of concern to ECR analysts are the country’s government finances and monetary/currency stability indicators, which stand at 3.8 and 3.3 respectively, the lowest of the country’s sum-factor scores. The country’s rising deficit has weighed heavily on its growth potential, with its debt-to GDP ratio reaching 57% this quarter, which according to an IMF report will likely drag down economic growth.

Source: ECR

This article was originally published by Euromoney Country Risk.