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At the same time, Standard & amp; Poor’s confirmed the long-term reference note ‘BB +’ the EMTN program in the amount of 200 million euros.
The note from the French Polynesia is supported mainly by good fiscal performance. The rating also reflects an institutional framework Polynesian “we deem scalable yet balanced, moderate debt and an average budget flexibility. “Said the rating agency.
The rating remains constrained by an inadequate liquidity, governance and weak financial management, very high off-balance sheet commitments and a small Polynesian economy. The long-term rating of French Polynesia is equivalent to its individual credit profile that S & amp; P assesses at ‘bb +’, considering the institutional framework of French Polynesia as “evolutionary but balanced”.
In fact, in addition to both ordinary and extraordinary support of the state illustrated by returning to the financing of RST and cash advance granted in 2013, French Polynesia shows a relatively large budgetary autonomy with editable recipes upward representing nearly 80% of operating revenues in 2014.
“However, after the implementation of the tax reform of 2013, we believe that the country’s ability to use the tax lever is limited by its commitment to support the economic recovery. This, combined with low leeway to shift or reduce investment expenditures due to their importance to the Polynesian economy strengthens our assessment of an average budget flexibility.
In this context, we continue to consider the financial governance and management of French Polynesia as weak. Indeed, we believe they remain constrained by the uncertainties related to the government’s ability to get the budget 2016. Moreover, we believe that, although in constant improvement, the satellites of controlled remains low.
We also positively assess the progress made in the management of debt and cash, including the lack of structured debt since 2015 in outstanding debt and a contracting cash online. Standard & amp; Poor’s remains attentive to the sustainability of these improvements, particularly in terms of cash.
More generally, we recognize that decisions taken since April 2013, including the establishment of the Fund of investment and guarantee of debt (FIGD), which aims to secure the repayment of financial liabilities of the country, reflect the commitment of French Polynesia to restore public finances and establish fiscal discipline. In addition, we appreciate positively the announcement by the Country of the implementation of a cost optimization plan from 2016.
In our central scenario, we estimate that the budgetary performance of French Polynesia remain strong showing improvement in gross savings. Indeed, we expect a gradual increase in the gross savings rate to 11% of operating revenues in 2017 against 6% in 2014 – which is significantly higher than in our previous central scenario. In our central scenario, we incorporate an implementation of savings measures which should reduce non-compulsory expenditure of around 1% per year allowing the country to display stability
its operating expenditure between 2015 and 2017 – in line with our previous central scenario.
At the same time, we expect growth in operating revenue of around 2.7% per year. This increase – although slightly higher than in our previous central scenario – moderate and remains linked to conservative assumptions in terms of taxation whose development is highly dependent on the local economic situation.
We think this should enable French Polynesia to maintain capital spending at a relatively high level of 24 billion F CFP on average between 2015 and 2017.
However, the improvement in gross savings would limit the investment after funding needs to a moderate level of 0.9% of total revenue over the same period.
We believe these strong fiscal performance would lead the French Polynesia to significantly reduce its consolidated debt ratio of 90% of consolidated operating revenues in 2014 to nearly 81% in 2017 – while we were expecting an increase to nearly 107% in our previous central scenario.
This also reflects our expectation of a partial use FIGD availability related to the country enabling it to limit its borrowing. The consolidated debt includes the direct debt of French Polynesia and financial commitments of the entities that we feel dependent, particularly on Air Tahiti Nui and Polynesian Office for Housing.
We believe that the risks associated with off balance sheet commitments of the country are still very high, particularly because of its many satellites entities (public institutions, SEM), its commitments under the general social protection ( PSG) and its exposure to natural catastrophe risk. However, we believe that the risks are limited by the RST return of the state to its funding.
Finally, if per capita GDP is Polynesian average in international comparison to 16,760 euros, the local economy remains weak because of its dependence on tourism and transfers from the State which exposes it to risk volatility.
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Standard & amp; Poor’s still considers unsatisfactory the liquidity situation of French Polynesia. We consider that the country will post a coverage ratio Debt service between 40% and 80% over the next 12 months and will benefit from good access to external liquidity.
We believe the cash management of French Polynesia is highly dependent on the predictability of sub-annual revenue receipts, particularly as regards the rate of recovery of tax revenue. This has improved significantly and is now at a high level of 95% in 2014. Also, for the first time, the country has contracted in 2015 a cash line of 2 billion F CFP it intends to renew in 2016.
In addition, the French Polynesia has also contracted in 2015 a budget of 3 billion F CFP with the French Development Agency, only some will be cashed within 12 months.
As a result, we consider that the average balance of available cash of the country (including FIGD), the available cash online and our estimate of the amount of long-term loans not yet received should cover over 50% of debt service in French Polynesia over the next 12 months (14 billion F CFP). This ratio should not, in our view, be affected by the country’s use of part of its cash to fund its capital expenditure to the extent that tax revenues allocated to FIGD represent an annual amount of order 2.5 billion F CFP.
In addition, we believe that French Polynesia has restored good access to external liquidity. Indeed, in 2015, the country has contracted nearly 7 billion F CFP loans, the equivalent of all of its financing needs for the year, with 4 banks.
Perspective: Stable
The stable outlook reflects our view that over the next 12 months to French Polynesia would post strong fiscal performance and reduce its consolidated debt while maintaining an inadequate liquidity.
We could take a positive action on the rating of French Polynesia if a stabilization of the political situation allowed the implementation of the optimization plan announced by the country leading to a strengthening of fiscal performance and the liquidity situation.
We could take a negative rating action if a new period of political instability settled and if the recessive economic environment persisted with as corollaries of lower tax revenues and higher spending nature social, which could undermine the intrinsic liquidity situation of French Polynesia.
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