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S&P Outlook Slash Was ‘Not Inevitable’

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Zhivargo Laing

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An FNM Senator yesterday said Wall Street’s latest outlook downgrade for the Bahamian economy was “not inevitable”, and could have been prevented if the Christie administration had taken proactive action to tackle this nation’s fiscal crisis.

Zhivargo Laing, minister of state for finance in the former FNM administration, said the Government had fallen into “a fiscal trap” by running up the 2011-2012 Budget deficit to $504 million, then exceeding it with $550 million worth of projected red ink for the current fiscal year.

Noting that this effectively committed the Government to borrowing more than $1 billion over two years, Mr Laing said the Christie administration was “saying to the world: ‘We don’t care about our fiscal deficit’.”

Given the message that was being sent, Mr Laing told Tribune Business it was not surprising that Standard & Poor’s (S&P) cut the economic outlook for the Bahamas from ‘stable’ to ‘negative’.

“No, not in light of the actions of the Government since coming to office, no,” was Mr Laing’s response, when asked by Tribune Business whether the latest S&P action was unexpected.

But he then added: “I don’t believe that this was inevitable. It could have been staved off by different actions on the part of the administration./

“If they were serious about the criticism that they so boisterously levelled at us prior to coming to office, one would have expected their actions would demonstrate a different approach to fiscal policy than ourselves, so one could see action was being taken to trend the country’s fiscal circumstances in a different direction. But that did not happen.”

Given the PLP’s opposition to the large 2010-2011 and 2011-2012 Budget deficits under the former Ingraham administration, Mr Laing said S&P could not help but question the Christie administration’s credibility when its projected 2012-2013 deficit of $550 million proved to be even larger.

“That is all on the present administration,” Mr Laing told Tribune Business of the latest S&P action. “The report says: ‘We saw nothing being done to change the trajectory of the Bahamas’ fiscal circumstances’.”

The former minister said an Ingraham administration would have “unquestionably taken steps to ensure we did not produce a $550 million deficit”.

He again accused the current government of “topping up” the 2011-2012 fiscal deficit to $504 million, suggesting it had charged off future expenditure against that year.

That was backed by a Central Bank of the Bahamas report, which put the fiscal deficit for the first 11 months of 2011-2012 at around $294 million, with Mr Laing yesterday suggesting this was done to give the Christie administration room to blame its predecessor for the country’s fiscal problems.

Defending the much-criticised 2010-2011 Budget tax increases, Mr Laing said these were implemented in a bid to start restoring the Bahamas to fiscal balance, given that the worst of the recession had passed.

He added that the previous government took these steps “because we thought it necessary to demonstrate a willingness to return to a stable fiscal position.

“The reality is, how does one change one’s fiscal circumstances if growth is not a significant prospect going forward?”Mr Laing asked.

“How does one do it? With revenue measures on one hand, and expenditure measures on the other.

“This is the fiscal trap the PLP finds itself in. It’s pandering has led to make a very foolish decision, topping up the previous Budget deficit and then running an even larger one.

“They’re saying to the world: ‘We don’t care about our fiscal deficit, we’re borrowing $1 billion in two years, and our comfort will be the guys there before us’.”

If the Government was serious about tackling the fiscal situation, Mr Laing suggested it would stop “hiring consultants all over the place”; cease spending money “all over the place” in areas such as Urban Renewal; and not allocate $15 million in ‘vague’ expenditures to the Prime Minister’s Office.

“That may be good local politics, but it’s bad international policy,”Mr Laing said of the Government’s alleged efforts to place the blame on the previous administration.

Asked by Tribune Business whether the former Ingraham administration needed to take the blame for the current fiscal predicament, and whether it had overspent during its term in office, Mr Laing replied: “No.”

He justified its policies by saying the depth, and duration, of the recession made it necessary to undertake expansionary fiscal policy. When growth started to return, the former government adopted a different fiscal stance and “began to correct some of our fiscal situation”.

Referring again to the S&P report, Mr Laing told Tribune Business: “The message is clear: ‘Change the course you are going in. Show us you are serious about changing your fiscal circumstances by taking action’.

“If it were not so serious, in some ways it would be quite laughable, because the PLP finds itself pandering to the population on fiscal circumstances largely caused by economic factors out of our control.

“Now they’re coming to grips with the fact it takes hard leadership decisions to change course, and the world has taken notice and said you’re on a shaky path.”

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