The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas was yesterday urged to target closing the 2014-2015 fiscal year with a debt-to-GDP ratio below the 70 per cent ‘danger threshold’, given that this nation was now increasingly exposed to further global recessions and shocks.

Gowon Bowe, the Coalition for Responsible Taxation’s chairman, emphasised that the latest national debt statistics emphasised the need for this nation to “turn the tide” on its fiscal performance.

Tribune Business revealed on Monday how the Central Bank of the Bahamas, in its 2014 annual report, had confirmed the national debt stood at $6.248 billion at year-end 2014, a figure equivalent to 73.4 per cent of Bahamian gross domestic product (GDP).

This puts the Bahamas’ national debt above the 70 per cent benchmark, which the International Monetary Fund (IMF) has previously described as the threshold where countries are in increasing danger of losing control of their financial affairs and sovereignty.

It is also a point where increasing amounts of government revenue are sucked away from public services to pay debt servicing costs, potentially trapping countries into a debt spiral.

However, Mr Bowe told Tribune Business that the Bahamas should focus on absolute dollar figures to measure efforts to reduce the national debt, as opposed to ratios and percentages.

He justified this by saying the latter two measurements could be skewed by years in which the Bahamas either enjoyed spectacular or low growth, and could alternatively create a false sense of security or “sense of panic”.

The Tax Coalition chairman also urged the Government to use the Bahamas’ investment grade rating, while it still enjoys it, to come up with a revised debt management and servicing (interest)structure and strategy.

And with the national debt ever-increasing, Mr Bowe said government spending controls and transparency over how it will use the Value-Added Tax (VAT) revenues, plus demands for a Fiscal Responsibilities Act, would become increasingly important.

The Government will enjoy “a bit of a buffer” during the second half of its 2014-2015 fiscal year, and Mr Bowe told Tribune Business: “We know there will be that bump from VAT in terms of closing the fiscal year.

“I’m hoping we close the fiscal year below a 70 per cent debt-to-GDP ratio.”

That may be difficult, given that the Government’s fiscal deficit for the seven months to end-January 2015 already exceeded the projection for the 2014-2015 full year.

“This is where the expenditure controls and transparency over spending of the VAT revenues becomes tremendously important,” Mr Bowe told Tribune Business.

“We see the fiscal trajectory is not moving in the direction we want, and are now trying to correct that, reverse that and turn back the tide.”

The Tax Coalition chief said every release of information relating to the Bahamas’ fiscal position “just highlights the significance” of a Fiscal Responsibilities Act, which would hold the Government accountable for - and possibly place limits on - its spending.

“It’s not to suggest that legislation will solve our problems,” Mr Bowe told Tribune Business, “but it will shine a light on it so it’s in the public domain.

“When they [the Government] over spend, they will have to come before Parliament and the citizens.

“When we have that level of transparency and accountability involved, the only way we can dig ourselves out of the hole we’ve spent ourselves into is to build up the Government’s coffers and have breathing space from any international shocks that take place in the future,” Mr Bowe added.

“Right now, we’re sitting on the borderline of any new shocks or recessions. We have to build back the breathing space we had before the 2008 event, as it’s not guaranteed we will not have another within the next 20 years.”

Mr Bowe called on the Government to adopt a debt management strategy that spread out principal repayments and helped reduce the debt-to-GDP ratio.

He said it needed to better match assets to liabilities, or revenues to spending commitments, and communicate this to the Bahamian people so “we don’t run into a period where payroll or debt principal repayments cannot be met. If we do that, the house of cards could tumble”.

And Mr Bowe added: “We need to focus on absolute debt, stop that growing and reduce interest payments. We should not concern ourselves with percentages; we should concern ourselves with absolute dollar amounts. We don’t have the luxury of pushing it out as far as we can going forward.”