The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

MORE than 27 per cent of the Government’s total recurrent spending in the 2017-2018 Budget is going towards repaying principal or interest on the Bahamas’ $7 billion-plus debt mountain.

Budget figures reveal that the $292.485 million earmarked for debt servicing (interest payments), and the $433 million for debt redemption, are the single largest line items in the Minnis administration’s Budget, with the Ministry of Health - thanks to the $40 million earmarked for the National Health Authority - the only ministry to be allocated a higher collective sum than this.

A close analysis of the Budget figures shows the extent to which taxpayers are increasingly having to finance the borrowing/spending habits of previous administrations, and just how much money is being sucked away from essential public services such as the police, Defence Force, health, education and social security.

Put another way, over one-quarter, or more than $1 out of every $4 spent by the Minnis administration in the 12 months to end-June 2018, will be going on the Bahamas’ debt.

James Smith, former minister of state for finance in the 2002-2007 Christie administration, said that while the amount of revenue allocated to debt servicing was “not in the danger zone yet”, it required careful monitoring given that it has reached record levels.

The $292.485 million in debt servicing costs is equivalent to 10.9 per cent of the Government’s planned recurrent expenditure of $2.676 billion, and 13.6 per cent of $2.15 billion in recurrent revenues.

Mr Smith told Tribune Business: “The amount of revenue going to debt service is not in the danger zone yet. But we don’t want to go too far beyond that. It allows you another 80 cents or thereabouts to do other things.

“We need to keep an eye on that. That will continue to change as soon as interest rates go up. I’m almost certain that the Budget will not have done a stress analysis of what will be the impact if interests rates go up one or two per cent.”

Total debt repayments - principal and interest - are set to total $725.284 million in 2017-2018, a 29.1 per cent rise on the prior year’s $561.552 million. K P Turnquest, minister of finance, attributed much of the increase - and rise in total recurrent spending - to the Government’s refinancing activities, which will consume $433 million in debt principal repayments.

While debt principal repayments are forecast to moderate in 2018-2019 and 2019-2020, dropping back below $300 million, debt servicing (interest costs) will remain relatively high at $282.171 million and $276.419 million, respectively.

The Minnis administration is projecting that the Government’s direct debt-to-GDP ratio will peak at 72.7 per cent in the upcoming 2017-2018 Budget year, declining slightly to 72.3 per cent in 2018-2019 and then falling to 70.8 per cent in 2019-2020.

Both these estimates are based on the Bahamas generating greater GDP growth than it has seen in almost a decade, with the economy forecast to expand by 1.4 per cent this calendar year, and 2.2 per cent in 2018, as Baha Mar becomes fully operational.

Once the government-guaranteed liabilities of public corporations are factored in, which amount to around 9 per cent of GDP, the Bahamas’ national debt-to-GDP ratio is likely to break through the 80 per cent mark by June 30, 2017, and stay there for at least two years.

“What I find rather concerning was what I was in office, my trigger was 40 per cent,” Mr Smith told Tribune Business of the debt-to-GDP ratio. “I thought that was a dangerous threshold. Seventy per cent is a new number for me.”

The Ministry of Public Service and National Insurance’s Budget shows the impact of previous spending decisions on the Government’s debt and deficit, with medical insurance premiums for public workers set to double in 2017-2018 to $70 million.

Public service pensions, which are effectively a ‘pay as you go’ scheme that is 100 per cent funded by the Bahamian taxpayer, are to increase year-over-year by 20.4 per cent - from $78.913 million to $95 million. Gratuities to public officials are rising by $6 million to $33 million, with office rents also increasing from $33.33 million to $42.962 million year-over-year.