The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The International Monetary Fund (IMF) has urged the Government to speed up reforms at Bahamasair and the Water & Sewerage Corporation, and eliminate their collective $60 million “drag on the public finances”.

The Fund, in its full Article IV report, expressed concern over the “lagging pace of reform” at all state-owned entities (SOEs), and warned that movement in this area was “key to reigniting growth” in the Bahamian economy.

It added that consistent annual multi-million dollar losses incurred by the likes of Bahamasair were an impediment to the Government’s primary goal of eliminating the fiscal deficit and reducing the $6.2 billion national debt.

“SOE reforms would facilitate fiscal consolidation,” the IMF said. “Staff noted that key state-owned entities continue to record sizeable financial losses as a result of their public service mandates, operational inefficiencies and inadequate enabling regulatory framework.

“In particular, operating costs are notably high, mainly reflecting aged facilities and generous employment policies, while productivity is low. Moreover, SOE tariffs have not kept pace with the cost of service delivery, necessitating continued budget support.”

Such concerns are nothing new for many Bahamians. Yet the Article IV report warned that the Government’s seeming reluctance to make rapid changes outside of the Bahamas Electricity Corporation (BEC) was in danger of creating “infrastructure bottlenecks”, and could hinder medium-term GDP growth.

Focusing on Bahamasair and the Water & Sewerage Corporation in particular, the IMF said taxpayer subsidies essential to their survival were likely to have totalled a combined $60 million in the recently-completed 2014-2015 fiscal year.

Pointing out that this sum was equivalent to 0.7 per cent of Bahamian gross domestic product (GDP), the Fund added that the total combined debt owed by all Government-owned corporations and agencies equalled 16 per cent of GDP last year.

“Reforms of these entities are thus critical to stemming the drag on the public finances,” the Article IV report said.

“Advancing far reaching reforms at the state-owned enterprises (SOEs) is key to reigniting growth. The pace of reforms in loss–making public entities, including the BEC, Bahamasair and Water & Sewerage Corporation, appears to be lagging and could hamper efforts towards alleviating infrastructure bottlenecks and enhancing medium-term growth.

“Staff urged speedy reform of these entities, focusing on lowering operating costs, rationalising tariffs, increasing capital investment, enhancing the regulatory framework and generally raising the quality and reliability of service. In particular, staff urged the authorities to press ahead with plans to place the electricity company (BEC) on a commercially–sound basis and to liberalise the regulatory framework.”

In its response to the IMF’s concerns, the Article IV report indicates that the Government focused solely on its plans for BEC - namely negotiating a management contract with PowerSecure International to take over the Corporation’s operations.

The Christie administration pledged that PowerSecure would be allowed to run BEC “on a fully commercial basis”.

“This would imply rationalisation of tariffs and employment policies, and laying the basis for increased investment and the modernisation of generation plants,” the IMF said.

“Transformation of BEC should lower energy prices, and enhance the competitiveness of the tourism sector.”