TORONTO (S&P Global Ratings) Oct. 3, 2019--S&P Global Ratings today said it continues to evaluate the short-to-medium-term credit effect, if any, of Hurricane Dorian on The Commonwealth of the Bahamas (BB+/Stable/B). Preliminary information available to us suggests that the long-term effects of the hurricane on credit quality could be limited, provided that the government is able to respond in a timely manner to the various challenges posed by the natural disaster.
Hurricane Dorian made landfall at Abaco and Grand Bahama, two islands in the northern part of The Bahamas, on Sept. 1, 2019. The hurricane severely damaged Abaco, and to a lesser extent, Grand Bahama. While the damage has been confined to those two islands, they represent about 15%-20% of Bahamian GDP.
Despite the significant damage to Abaco and Grand Bahama, several factors suggest that the long-term effects of the hurricane on The Bahamas' credit quality could be limited. The hurricane struck outside of peak tourist season, and the physical damage was concentrated on two islands that together attract only about 20% of tourists. Other destinations within the country, including Nassau, the capital and economic center, were unaffected. Furthermore, before the hurricane, the country had been on track to achieve good GDP growth in 2019, slightly exceeding our forecast. The government also recently reported a relatively strong fiscal performance in 2019 (year ended June 30). Based on the information currently available, the timing and location of the hurricane's impact, and the country's relatively strong economic and fiscal performance year to date, it is possible that Dorian may not lead to a meaningful deterioration in The Bahamas' economy, fiscal performance, debt burden, and external assessment.
Nevertheless, this event highlights the importance of considering environmental factors in our analysis of The Bahamas, given its location in the Atlantic hurricane belt, and the large geographic dispersion of its 700 islands over almost 14,000 square kilometers. In the past five years, The Bahamas has been affected by at least four other serious hurricanes. We believe this elevated environmental risk has contributed to below-average growth for The Bahamas, when compared with peers with similar GDP per capita. The Bahamas has taken steps to mitigate the risks related to increasingly frequent climate disasters by strengthening its public finances, planning for these events, and obtaining insurance. Despite these efforts, vulnerability to natural disasters continues to affect the country's creditworthiness.
We will continue to follow the developments and pace of recovery efforts, including the government's ability to respond effectively to the many challenges of recovery. We will focus particularly on the implications for long-term economic growth, government finances, debt burden, and the country's external position. We could lower the rating if we come to expect that public finances deteriorate compared with medium-term expectations, either because of the fiscal impact of the hurricane or weakened political commitment to fiscal sustainability.
This report does not constitute a rating action.
|Primary Credit Analyst:||Jennifer Love, CFA, Toronto + 1 (416) 507 3285;|
|Secondary Contact:||Julia L Smith, Toronto (1) 416-507-3236;|
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