by Larry Smith
According to Sir Franklyn Wilson - one of the chief architects of the current PLP administration - the Bahamas is in “a very dangerous spot”.
He was referring to the potential downgrading of our investment rating to junk status by international financial agencies like Moody's.
Junk status means we are at risk of defaulting on our national debt. This would deter investment, raise borrowing costs and increase inflation.
Eventually it could lead to a devaluation of the Bahamian dollar, which would dramatically affect our cost of living and the ability of average citizens to travel.
The credit downgrade has been made more likely by the revelation that the Bahamian economy has actually contracted over the past two years (contrary to government projections) and little to no growth is expected in the near term.
Added to this, public debt reached a whopping $6.8 billion in March, while government spending grew by over 17 per cent - despite talk of restraint and the collection of new tax revenues.
Those indicators should be well known to most readers, but a new and less familiar economic threat is looming on the horizon that could affect all of our interactions with the outside world.
That threat is called de-risking. We could be shut off from global financing due to concerns about money laundering and terrorist financing.
A recent Reuters report put it this way: "As banks scrub their books of potentially risky businesses amid a tightening regulatory noose, major US. financial institutions have ended relationships with regional banks across the Caribbean."
This has already happened to five offshore banks here. Commercial banks here have also threatened to sever relations with local money transfer companies, as well as lawyers and realtors who operate third party accounts.
Among Caricom countries, at least 16 banks have lost all or some of their correspondent banking relationships, according to the International Monetary Fund.
“The devastation this can cause to the economies in the islands is horrific,” said John Beale, Barbados' ambassador to the United States. “How does a hotel carry out their business in terms of credit cards? How do they get compensated?”
The IMF has acknowledged that money transfer and remittances business has already been impacted, "along with business lines including credit card payments, cash management, investment services, and clearing and settlement."
Central Bank Governor John Rolle recently warned about "increased scrutiny" of Bahamian banking relationships with the rest of the world, but offered no plan to address the issue.
According to one local financial observer, “if we lose our corresponding bank relationships it will affect all trade and transactions, and some people will go out of business.
"We have to think this through very carefully and the Central Bank needs to communicate more effectively on this issue. We are in a very compromised position."
Meanwhile, the government is under fire for misrepresenting spending, borrowing and economic growth estimates. And there is little prospect of any meaningful economic reform over the near term.
While some observers expect the de-risking issue to be gradually resolved in time, others warn that a perceived erosion of our financial integrity could help to precipitate a credit rating slide.