By NEIL HARTNELL
Tribune Business Editor
The Bahamas needs to achieve consistent record economic growth of between 5-7 per cent over a five-six year period to absorb both its existing 30,000 unemployed workers, and school leavers, into the workforce.
James Smith, former minister of state for finance and Central Bank governor, yesterday told Tribune Business that kickstarting economic growth and job creation was the most important short-term measure to help the Government’s finances.
While both elements were vital to boosting imports and related tax revenues, Mr Smith also praised the Government’s announced intentions to cut spending at most departments/agencies by 10 per cent.
While this was unlikely to translate into slashing $182 million from the projected $1.82 billion recurrent expenditure forecast for 2012-2013, Mr Smith said the critical thing was the signal/message it sent - both within and outside the Bahamas.
“It’s a signal that there is a growing problem with the deficit,” Mr Smith told Tribune Business of the 10 per cent cuts, “so it has to be addressed on all levels, especially the operations levels at every department and agency.
“It’s not business as usual. It’s an important message psychologically. That’s the important thrust.
“What needs to be known, particularly by the operators within the public service, is that each agency and department is expected to be a little more thrifty in what they’re doing and cut back wherever they can. We went in so deep, it’s going to be a slow climb out.
The message that ‘we have to cut back’ was an important statement of the Government’s thinking and direction, Mr Smith said, but he added: “It’s unlikely to be 10 per cent of whatever the Budget is.”
This was because the Government was already bound into industrial agreements on public sector wages, which account for 55-60 per cent of total spending, and other contractual commitments. It is also unable to adjust debt servicing and principal repayments, which account for another 10-15 per cent of spending.
“The important thing was to get the message out that the time has come to introduce cutbacks. That, more than anything else, is the essence,” Mr Smith said.
“I think, for the most part, anyone who follows the fiscal affairs in the Bahamas, will be looking for something like this, because month after month we’ve been running widening deficit. It’s what they’ve been waiting for.”
That was a reference to the likes of the International Monetary Fund (IMF), plus the Wall Street credit rating agencies, Moody’s and Standard & Poor’s (S&P).
Still, Mr Smith acknowledged that the more than $1 billion increase in the national debt that was incurred by the former Ingraham administration had added at least $50 million to the Government’s interest bill - a sum that had to come out of the recurrent spending budget.
Describing tax reform more as a medium term objective, Mr Smith said that with spending continuing to outstrip revenues, economic growth was the priority when it came to closing the fiscal gap.
“Since we don’t have a convertible currency, we can’t continue to borrow without putting that at risk,” he told Tribune Business.
Agreeing that the Bahamas required “much more” than the forecast 2-2.5 per cent GDP growth it is projected to generate in the short-medium term, Mr Smith suggested it needed to look for expansion avenues other than the US.
“We need the ability to generate anywhere between 5-7 per cent growth. We’d have to do that over a 5-6 year period,” Mr Smith told this newspaper. “We have to get back those that have been lost [the unemployed], and those coming into the tax stream.
“We have to start climbing out of the hole and build a new mound.”