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It only took a few years for Turks and Caicos to reduce the power of cronyism in its leadership. Expect other Caribbean nations to follow suit as they see the economic benefits.
From a $100 million “ultra-luxury” development that will create hundreds of new jobs to new beach-side penthouse suites in its capital to the development of a tourism “obstacle course” for adventure seekers, the Turks and Caicos Islands are enjoying an economic comeback.
The renewed investor confidence comes five years after the British government was forced to suspend the islands’ constitution and take control of day-to-day operations amid a government corruption scandal; the former premier and several members of his cabinet headed to trial on Oct. 7.
The country was saddled with financial woes and compounding those were two successive hurricanes and the global financial crisis, which brought tourism development projects to a halt as foreign investors went bankrupt and others shied away from the popular celebrity getaway at the southern tip of the Bahamas chain.
“There was a huge drop in the government’s revenues and some economic decline resulting in negative growth,” said Finance Minister Washington Misick. “So to bounce back from all of that is great.
“This says that the Turks and Caicos have weathered the storm well. The economy has turned around; we are making good progress,” he added. “The country has sound financial management, the economic plans are good and the growth projections are positive.”
The New York-based credit rating firm Standards & Poor’s agrees.
Earlier this month, analysts gave the territory a positive outlook, rating it BBB+, well above the Bahamas, Barbados and other tourism-dependent territories.
The Turks and Caicos’ first-ever sovereign rating reflects not just the British-dependent territory’s investment readiness, but also the financial changes officials have undertaken in the last five years, said Joydeep Mukherji, senior director of Latin American sovereign ratings at Standard & Poor’s.
It also is in line with the overall positive growth trends taking place in the Caribbean, which is expected to see on average growth of about 1.4 percent in its tourism-dependent economies, the International Monetary Fund has said.
“There has been a gradual coming back,” Mukherji said about the Caribbean region. “There hasn’t been a sharp recovery, but it hasn’t been fast anywhere. However, the worst years of negative growth are gone.”
In the case of Turks and Caicos, Mukherji said, the economy is doing well despite islanders’ recent opposition to the government’s push for a payroll tax, or the British support of the consumption-related Value Added Tax (VAT) to raise revenue.
“Right now their finances are OK. They don’t have a great deal of discretion at the moment because they made a commitment to the British government,” Mukherji said. “Their budget still has to go to London to be approved, and London can make changes. The British have a very strong role in setting the budget.”
Mukherji said the credit firm was approached by the Turks and Caicos government to provide a credit rating in preparation for its achieving financial autonomy from the British, which after taking over the day-to-day affairs in 2009 had guaranteed the islands’ debt through the issuance of a bond.
The guarantee expires in 2016, at which time the islands’ locally elected government plans to seek a new bond. To do so, they need to know the chain’s credit worthiness.
“Part of the government’s plan is that they will issue a new bond in their own name without the British government’s support and they will use proceeds to repay the bond that the British had guaranteed,” Mukherji said.
The credit rating scale ranges from AAA to D for default. The Turks and Caicos’ investment grade rating of BBB+ reflects the work that has gone in, first by the British and now the current administration, to shore up the islands’ vulnerability to external shocks and develop a budget surplus.
“This is crucial to our plans to continue to build and broaden our nation’s economy,” said Turks and Caicos Islands Premier Dr. Rufus Ewing.
“We can take great pride in noting that this terrific rating news bucks the trends of other Caribbean economies, some of whom have been recently downgraded and given negative outlooks.”
This month, Fitch Ratings downgraded Aruba’s stable outlook — even though Standard & Poor’s had rated it the same with Turks and Caicos — citing several key drivers. Among the issues Fitch pointed out: the Dutch territory’s sovereign creditworthiness has deteriorated since 2009 and its vulnerability to external shocks had increased. Also, the territory’s public debt had jumped from 40 percent of Gross Domestic Product to 60 percent, Fitch said.
Aruba’s finance minister, Juan David Yrausquin, objected to the downgrade, saying “the Fitch report does not depict a true economic picture of Aruba. It overlooks multiple important fiscal, economic, and structural measures we have taken to reduce Aruba’s deficits in 2014 and beyond, and does not recognize our commitment to continue to pursue a path of fiscal sustainability over the medium term.”
Like Aruba, Turks and Caicos has been working to put the global financial crisis behind it.
Before returning the island to direct rule with general elections in 2012, the British government introduced layoffs and other financial reforms including the appointment of a chief financial officer with a lot of power over revenues and spending.
Misick, the finance minister, said the government remains committed to coming up with some kind of compromise to raise some revenue through additional taxation, as well as to cut spending.
For now, however, Turks and Caicos is enjoying the shift in its financial sails, he said.
“Our tourism sector has been doing exceptionally well. Construction activity is starting to rebound,” Misick said. “Our focus is on our economic growth. And we will continue to explore a broad base tax that is acceptable to everyone.”
Earlier this month, the government signed one of the biggest development deals since the British returned power. It agreed to the construction of a $100 million luxury resort hotel and marina on 17 acres in Providenciales. The development agreement with Circle Holdings is expected to create 300 to 400 jobs and pump an additional $9 million in taxes annually into the government once it begins operations.
Construction is set to start next year with an opening scheduled for the 2016-17 tourist season. The deal was signed just one week after the Standard & Poor’s rating.
“This is a tremendous investment boost to the TCI economy,” the islands’ London-appointed governor, Peter Beckingham, said. “It shows that the TCI is open for business, provides the stability and confidence that investors require. This announcement certainly bolsters the Islands’ position as one of the most vibrant economies in the region.”