Published On:Friday, March 05, 2010

By NEIL HARTNELL

Tribune Business Editor

THE Government was yesterday urged by a leading fiscal hawk to "set a pro-growth policy and stick to their guns" in setting the Bahamas' public finances back on a sustainable path, criticising both FNM and PLP governments for failing to run fiscal surpluses and save funds when the economy was doing well.

Rick Lowe, a leading executive with the Nassau Institute economic think-tank, told Tribune Business that with the national debt rapidly approaching $4 billion, and the Bahamas' debt-to-GDP ratio close to 54-55 per cent, the "proverbial chickens were coming home to roost" over the failure of successive governments to "save for a rainy day".

Urging the Ingraham administration to implement "drastic cuts" to public spending and reduce the size of government, Mr Lowe said the "only way out" for the Bahamas from its current predicament was for the Government to set a pro-business, pro-growth policy that allowed the private sector - the wealth creators and risk takers - to grow the economy.

"They [the Government] have to take some drastic steps to cut expenditure. There's no two ways about it," Mr Lowe told Tribune Business. "It's unfortunate to be in that position, and it may not be the medicine we want, but the Government has to cut spending. They may even have to cut some taxes to encourage people to spend.

"I believe they [politicians] follow the big government idea, but what wealth does government create? They only take it away from the private citizen.

"They're in quandry. They have to set a pro-growth policy that allows the private sector to grow and stop borrowing. It might allow the banks to lend to the private sector, because the Government is sucking up all the assets. Banks are scared to lend, so we're in a dilemma. They've got to set a policy and stick to their guns."

Ironically, Mr Lowe's concerns appeared to be at least partially addressed by Zhivargo Laing, minister of state for finance, during his 2009-2010 Mid-Term Budget address.

Mr Laing hinted that the point at which the Government must cease its fiscal stimulus programme and focus on getting the public finances back to a sustainable path may have been reached, with the level of deficit spending, and consequent increases in the national debt, set to be reduced.

The Government, Mr Laing acknowledged, had spent "tremendous public revenues" to support the Bahamian economy and employment levels during the global recession, and now needed to recreate "the headroom we need to address any new crises should they occur".

Sending a message of fiscal prudence to both a Bahamian and international investor audience, Mr Laing expressed optimism about the Bahamas' economic outlook, saying: "The tide is turning in terms of the economic reality we are facing. The bottom has been reached and recovery is on the way."

And, agreeing with Mr Lowe on the need for Bahamian governments to run a fiscal surplus - at least on the recurrent side - when times are good, the minister added: "The greatest lesson in this crisis for all of us, for governments to come, is this. When times are good, manage your fiscal affairs in such a way as to provide yourself with headroom to respond to crises when they occur.

"Exercise the discipline necessary to be prudent in the use of government resources, so that when crises occur, as they inevitably do, you can respond in a strategic way to lessen the suffering of people......"

Mr Lowe picked up on this point, taking issue with the notion that the former Christie-led PLP administration between 2002-2007 only incurred "responsible debt", a notion advanced by ex-FINCO managing director and Bank of the Bahamas International chairman, Al Jarrett.

The Nassau Institute executive provided Tribune Business with figures that showed for the five Budget years between 2002-2007, a time when the Christie administration said the economy was booming and tax revenues should have been plentiful, the then-PLP government still ran heavy deficits.

Starting in 2002-2003, when the fiscal deficit was $187.616 million, the Christie government incurred successive deficits of $166.379 million, $175.527 million, $106.08 million and $182.511 million. That, collectively, amounted to almost $800 million in deficit spending, although repayments of existing debt principal took the net debt added to around $600 million.

"We didn't do our homework when things were so good, or supposed to be so good," Mr Lowe told Tribune Business. "There was no saving for a rainy day, and now the proverbial chickens have come home to roost.

"It's tough to get revenues to pay for these things. It's great to expand expenditure when things are good, as you don't feel the pain."

He added: "It's a political goal not to help us deal with reality. They create these myths about how wealth is created. We've got some 40 years of deficit spending, 40 years of borrowing that's now catching up on us. They have to cut spending and encourage the private sector.

"It's perfectly clear that when you've got years of plenty, and are still running huge deficits in the hundreds of millions of dollars, obviously things are wrong."

Mr Lowe told Tribune Business that the Government often "sets itself up for a fall" by making its Budget projections on an assumed economic growth cycle that does "not necessarily occur".

"We've got far too much debt," he added. "We've got to get it down somehow, and the only way out is to grow the private economy. The same people who create wealth, we can't keep on hitting them, as they are where the Government gets its revenue from."