The Tribune

The Bahamas can no longer afford “tax and spend” budgeting, the Opposition’s finance spokesman said yesterday, with its 76.3 per cent debt-to-GDP ratio in the “red flag zone”.

K P Turnquest said the Inter-American Development Bank’s (IDB), newly-released report, which warns that the Christie administration’s fiscal consolidation plan will only “stabilise” - not reduce - the Bahamas’ growing $6.6 billion national debt, was in line with his assessments of the current fiscal picture

According to that report, the Bahamas needs a $560 million “adjustment” at present growth rates just to cut its debt-to-GDP ratio to 60 per cent by 2021, amid warnings this nation now lies on the fiscal “dark side”.

“While the Government has cut back on expenditures in capital work, increaseing recurrent expenditure continues to outpace GDP growth, particularly in the area of wages and personal emoluments. Thus a day of reckoning will one day come,” said Mr Turnquest.

“When the Government says it has slowed the growth of the debt by reaching further into the pockets of businesses and individual households, there is a countervailing price to be paid in slower growth due to lower consumer spending and FDI. 

“It’s a continuous balancing act to ensure that tax policy does not stagnate growth, while allowing the Government enough financial resources to fulfill its commitments. It is clear that we can no longer continue on the path we are on in terms of tax and spend,” he added.

“Having exceeded the debt-to-GDP red flag zone, clearly some further steps need to be taken.  The IDB suggest we need to find $50 million in spending cuts in order to bring our debt under control.  I tend to agree, and if you look at the current year’s Budget there is clearly room to achieve this goal by merely eliminating the pork barrel pet projects, inflated estimates and wild contingencies which sometimes exceed the substantive Budget in areas.”

The IDB said that just to “stabilise” the debt-to-GDP ratio, the Bahamas needed an adjustment equal to 3.4 per cent of GDP. ‘Adjustment’ is defined as the size of the swing into a primary surplus, which measures the difference between recurrent revenues and spending, once interest (debt servicing) payments are subtracted.

Mr Turnquest said: “We must practice a more disciplined budgeting process where expenses are clearly identified and outlined.

“It cannot be acceptable that you just put in a figure as a catch-all. In such cases, where projects or cost are not defined, there should be a mechanism where the Government comes back to Parliament to request those adjustments and to account for the projects; the so-called Fiscal Rule. 

“In this way we help to build in fiscal prudence, transparency  and conservatism into the system. Likewise, it cannot be that the revenue side of the Budget debate is allowed to go unchallenged. This is an area that warrants scrutiny, as for years it has been overestimated, resulting in GFS deficits and a ballooning national debt.  Again, fiscal conservatism is necessary until we are able to get a handle on our spending and debt.”