The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas “cannot take much comfort” from maintaining its investment grade rating, the Opposition’s deputy leader yesterday suggesting it was “premature to celebrate” Value-Added Tax’s (VAT) gross $536 million return.

K P Turnquest told Tribune Business that while this nation should be “grateful” it had not been further downgraded to ‘junk’ status, Standard & Poor’s (S&P) accompanying assessment of its economic and fiscal health did not warrant “rejoicing”.

In particular, Mr Turnquest said it was impossible to brand VAT a successful revenue-raising mechanism until it was known how much had to go back to Bahamian businesses in the form of refunds and tax credits.

And he backed S&P’s more conservative projection that the Bahamian economy would only grow by 1.2 per cent in 2016, arguing that recent history had shown the International Monetary Fund’s (IMF) forecasts to be “overly aggressive” when it came to this nation.

The IMF is predicting that Bahamian GDP will expand by 1.5 per cent this year, a growth rate that S&P believes will only be achieved in 2017.

Mr Turnquest’s analysis was backed by the Democratic National Alliance’s economy spokesperson, Youri Kemp, who said S&P’s action was “nothing to be thrilled about”.

Mr Kemp, the DNA’s Garden Hills candidate for the upcoming election, said the only ‘positive’ for S&P was that the Government “is taxing us to the high heavens, with no means of generating real value and real returns for Bahamians”.

He also suggested that the rating agency had failed to pay sufficient attention to the Government’s growing expenditure, even though it had acknowledged the $6.6 billion national debt - and associated ratios - will keep growing through 2019.

Mr Turnquest, meanwhile, told Tribune Business: “I think it’s true to say that all of the rating agencies are giving the Government as much leeway as possible to improve the rating, and complete its fiscal reforms,” “I don’t think we ought to rejoice at maintaining the rating. We ought to be, and I don’t want to use the word grateful, but we ought to feel positive we’ve not been downgraded.

“Overall, we don’t take much comfort. However, we’re certainly pleased the country as a whole was not damaged further by any downgrade.”

Tribune Business revealed earlier this week how S&P, in its latest assessment of the Bahamas, had given this nation - and the Government - some more ‘breathing space’ to push through much-needed economic and fiscal reforms by maintaining its existing ‘BBB/A-3’ sovereign credit rating.

This ensures the Bahamas, for the moment, retains its ‘investment grade’ status, although it continues to hover ‘one notch’ above so-called ‘junk’ levels.

Mr Turnquest, though, noted that the ‘negative outlook’ attached to the rating means that S&P’s next action is more likely to be a downgrade than a ‘stabilisation’ of its view on the Bahamas.

“There’s not much optimism from the growth point of view,” he told Tribune Business. “They’re [S&P] weighing very heavily Baha Mar, but even more so the growth projections. The results of the fiscal performance for the end of the year will have some significant bearing on the rating going forward.”

S&P’s April 15 assessment said the Bahamas will be stuck in its “below average economic growth” rut for some time, something that Mr Turnquest branded as “the real story here”.

“We are growing at a very anemic rate,” he added, “as we have been saying for a while and, to be truthful, it is consistent with our average growth for the past 10-15 years.

“I don’t see anything on the horizon to provide a significant uptick in that growth pattern.”

Mr Turnquest, who is also the Opposition’s finance spokesman, said that based on the Bahamas’ recent GDP growth history, he preferred S&P’s lower estimates over those generated by the IMF.

“The experience over the last several years has shown that the IMF is relatively aggressive in its growth projections, while S&P is more conservative and a little more accurate with their estimates,” he said.

“I feel fairly comfortable that growth will be around 1.1-1.2 per cent this year.”

S&P’s April 15 analysis indicated that Value-Added Tax’s (VAT) “outperformance”, with almost $536 million in gross revenues collected during the 2015 calendar year, had played a key role in convincing it to hold off on another Bahamas downgrade.

Combined with a fiscal deficit reduction equivalent to almost 1 per cent of gross domestic product (GDP) during the 2015-2016 Budget year’s first seven months, S&P said the Government’s improved financial performance had offset “below par” growth and the ever-increasing $6.7 billion national debt.

Mr Turnquest, though, said the $536 million VAT figure was misleading, since it did not account for both ‘refunds’ to businesses and the tax revenue foregone in other areas.

Import duty and Excise Tax rates in certain areas were either lowered or eliminated to make way for VAT, while the 10 per cent hotel room occupancy tax was eliminated.

And 7.5 percentage points of the 10 per cent ‘Stamp Duty on real estate transactions’ rate is now VAT, meaning this levy has effectively been reclassified.

Central Bank data for the first five months of the 2015-2016 fiscal year showed that a collective $71.6 million in other taxes have either been eliminated or foregone as a result of the VAT’s implementation, meaning the Government’s net take will be less than the $536 million touted in S&P’s report.

Government officials had previously told Tribune Business that they expected VAT to generate a net $300-$350 million increase in revenues annually, and Mr Turnquest said this was the figure he is most interested in.

“One of the things we’re trying to track down is how much of that $536 million collected is due to be refunded,” he told Tribune Business.

“We know there is a significant lag in terms of the amount of money refunded [to businesses]. Until we know what that number is, it might be premature to celebrate how much money has been gained through VAT.”