By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
THE Chamber of Commerce’s chairman yesterday branded the multi-billion public pension deficit a “nightmare”, while arguing the Bahamas would not hit IMF growth forecasts “in our current state”.
Michael Maura, responding to the IMF’s latest statement on the Bahamas, warned that despite the Minnis administration’s progress to-date “there is a tremendous amount of work at hand and time is not on our side”. Noting the emphasis placed by the International Monetary Fund (IMF) on making state-owned enterprises (SOEs) “self-sufficient”, Mr Maura told Tribune Business: “Privatising State Owned Enterprises (SOEs) is a must. “The Government does not have the capital or the expertise to move our national infrastructure into the 21st century. The IMF, S&P and Moody’s are expecting Bahamas Power & Light (BPL) to go this route.”
Entities such as the Public Hospitals Authority (PHA), Bahamasair, Water & Sewerage, ZNS and the Hotel Corporation are sucking up almost $430 million in taxpayer subsidies during the 2017-2018 Budget year, representing a fiscal drain that is unsustainable.
The Minnis administration has committed to making these SOEs “cost recovery centres” and eliminating these subsidies, but it has yet to articulate a comprehensive strategy for tackling the unfunded - and rapidly growing - civil service pension liability.
This was again highlighted by the IMF, and Mr Maura said: “The pension liability is a nightmare and highlights a Government’s inability to effectively run a business.
“The Government should use the opportunity to privatise SOEs as a means to fund a portion of this liability. Defined Benefit plans, where the employer makes all of the contributions, has proven to be unsustainable and should have been discontinued decades ago.”
The International Monetary Fund (IMF) has warned that the Government’s unfunded $2.2 billion pension liabilities are “a significant fiscal risk” that could undermine efforts to get the public finances back on a sustainable footing.
The IMF, in its Article IV report earlier this year, said it was “inevitable” that the Government would have to reform both public sector pensions and the National Insurance Board (NIB) to defuse a potential social time bomb.
It warned that unless corrective action was taken, both schemes would become an unsustainable burden on the Bahamian taxpayer and society, with ageing populations and a reduced workforce exacerbating the problem.
“Pension payments have trended up to an estimated 1.1 per cent of GDP in fiscal year 2017, and population aging will increase them further,” the IMF had warned. “Staff recommended transforming the civil servants’ pension system into a contributory regime in the near term, with contributions commensurate with benefits, and with a view to move to a defined-contribution scheme in the medium term. Setting contributions at 5 per cent of wages for pensionable employees could yield revenues for 0.3 per cent of GDP.”
The saving would be equivalent to $25.2 million per annum, based on an $8.4 billion GDP and the IMF’s figures. The KPMG accounting firm previously estimated the unfunded, ‘pay-as-you-go’, civil service pension liabilities at around $1.5 billion. These liabilities are set to increase to $2.5 billion by 2022, and $4.1 billion by 2032, unless reforms are enacted.
Mr Maura, meanwhile, called on the Government to “remain vigilant” on numerous areas that would enhance the ‘ease of doing business’ and support the Bahamian economy’s growth.
“We are fortunate that Baha Mar is opening new hotels and we see job creation, we are fortunate that the US economy is healthy,” he told Tribune Business, “but we have so much work to do to achieve the predicted growth.
“The IMF GDP forecast should not result in Government sitting back for the moment in relief, but lean forward with an awareness that 2.5 per cent growth will not happen in our existing state.”
Focusing on the ease of conducting business, Mr Maura said small and medium-sized enterprises (SMEs) faced the greatest costs and challenges despite accounting for more than 50 per cent of all businesses in the Bahamas.
“Labour productivity is low and impedes GDP growth,” he added. “The Government’s National Productivity legislation is a positive step but requires greater focus.
“It would be ill-advised for the Government to contemplate increasing the cost to businesses at a time when productivity is terribly low and many businesses are not yet experiencing the economic turnaround. Any step to increase labour costs is not a prudent move.”
Mr Maura also called for Business License fee reforms, and moving away from its calculation based on a company’s gross turnover. He added: “Over the economically challenging years of 2008 to present, this has often resulted in a business having a net loss or making the loss for the year even greater.”
Urging greater connectivity and communication between different government agencies, he said: “Cross-agency validation and interface is a must. The citizen and business interface with Government must be a single point of contact.
“Information, communication and technology (ICT) must be available and reliable throughout our Bahamas. RBC’s move to digital banking is a wake up call and we must ensure that our communities have the ability to commercially and socially survive.”
Comments
Porcupine 6 years, 3 months ago
I really take exception to the logic presented by Mr. Maura. I think we really have it backwards in many respects. Let's parse Mr. Maura's statement, "Labor productivity is low and impedes GDP growth." What does this mean to a business person? It means simply that you are going to get less for your money. Or, to put it another way, the work force is either untrained, incapable, or lazy, right? I just saw a report that theft in The Bahamas costs us about 5% of GDP. Is that possible? 5%? So, start adding up some of these serious "leakages" and you have to be retrained as a business manager and owner. Retrained to start adding so much mark up to the retail price because of the variables and uncertainties on the "expense" side that you have to charge your customers much more if you wish to stay in business long. A business is a business. Once a business manager has the formula right, and the tools needed to do that job, that business is profitable. So, why the distinction between government and private sector. Inherently, the only real difference is that private enterprises are expected to be greedy, government run institutions are not. But a business is a business. We just live in a world where everybody has been educated to believe that the private sector is the only way to go. There are many very efficient government run programs in the US. From the postal service, to social security, to Medicare. Contrary to what we often see on TV, these organizations were run like businesses. Good businesses. But, Trump is also on this privatization bandwagon. Me, I just don't see where every human activity and need has to come down to "needing" to make a profit. Is it a coincidence that almost every privatized governmental enterprise ends up in the hands of the already wealthy? Who then make even more money off of the little people. It is the entire system that is broken. We can't be afraid to use our imagination in creating a new Bahamas.
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