By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Bahamas yesterday suffered “another shot across the bows” after an Inter-American Development Bank (IDB) report revealed it has exceeded its sustainable debt limit by more than 20 percentage points.
The paper, by Allan Wright and Francisco Ramirez, estimated that the Bahamas has one of the lowest fiscal, or sustainable debt-to-GDP ratio, limits in the Caribbean and Latin American region at 50 per cent.
The 2017-2018 Budget, though, shows that this nation’s debt-to-GDP ratio is forecast to hit 71.5 per cent by end-June, and continue climbing to hit a peak of 72.7 per cent in the upcoming year - ratios that are, in percentage terms, 45.4 per cent higher than the “limit” calculated in the IDB report.
The report’s figures are only for direct government debt, and thus ignore the near-$500 million worth of debt - equivalent to 9 per cent of Bahamian GDP - that the Government has guaranteed on behalf of the public corporations.
This places the Bahamas’ total debt-to-GDP ratio at around 80.5 per cent, well north of the 60-65 per cent estimated by the IDB report, and which had already blown past the 50 per cent level deemed appropriate for this nation.
The authors, using various indicators, said their model was designed to show “the highest level” of debt that the Bahamas and 17 other countries could sustain, based on their fiscal policy and economic fundamentals.
They added that the risks of a sovereign default increased in line with the extent to which debt-to-GDP ratios exceeded this level, “as rising tax revenues will be increasingly unable to cover the mounting debt”.
“Among the Caribbean economies, Trinidad and Tobago (138 per cent debt-to-GDP), Jamaica (105 per cent) and Antigua and Barbuda (91 percent) were listed among the economies showing the greatest ability to service debt given economic fundamentals and fiscal policy,” the report said, “while the Dominican Republic (43 per cent), the Bahamas (50 per cent), and Barbados (61 per cent) were lower.”
Besides having one of the ‘lowest’ fiscal limits, the Bahamas has already blown past this threshold, which the IDB paper interpreted as a sign of “rapidly expanding public debt”.
“These economies should promptly consider deepening their fiscal consolidation efforts, including potential fiscal reforms, to improve both short and long-term outcomes,” the authors said.
Robert Myers, a principal with the Organisation for Responsible Governance (ORG0, yesterday described the report and its fiscal modelling as “another shot across the bows” warning the Government, and the wider Bahamas, of the urgent need for fundamental fiscal reform.
While the Minnis administration had ‘talked a good game’ to-date, he expressed “grave concerns” over whether it could execute the reforms that are necessary on both the revenue and spending sides.
Mr Myers suggested that the Bahamas’ debt-to-GDP level was higher than that allowed by the IDB report, but told Tribune Business: “Either way you look at it, it’s beyond a dangerous level, and everything and anything has to be done to curb the deficit and debt. The challenge remains the same.”
He added that the report’s findings should strengthen “the very loud and clear message to the current administration that we have to get our fiscal house in order”, in the same manner ORG and others had pressed the Christie government to do similar.
“My gravest concern is that there’s a vast difference between talk and execution,” Mr Myers told this newspaper. “The challenge remains: Can they execute these plans for fiscal recovery, and can they connect the dots between education, accountability, government accountability and economic development?
“Do they actually understand the connectivity between economic growth, education and government accountability? They all work together, and are all very large topics.”
He added that ORG had already met with several government ministers on the issue, and reiterated: “It’s all well and good the head talking the talk, but the body has to walk the walk.
“There’s a great deal of distance between talking the talk and executing. That requires finding the people with the capacity to understand, manage, hold accountable and otherwise change, not just talk about it.”
The IDB report’s findings add to the growing evidence illustrating the scale of the task the Bahamas faces in attempting to turn around its increasingly precarious fiscal situation by eliminating the $300-million plus fiscal deficits and paying down the $7 billion national debt.
The Minnis administration has warned it could add $722 million to the latter through borrowing to cover fiscal holes for both the 2016-2017 and 2017-2018 Budget years, with the deficit for the former now projected to be $500 million instead of the mid-year Budget’s $350 million.
Budget data projects that in the 13 years between the 2007-2008 and 2019-2020 Budgets, some $4.375 billion will have been added to the national debt. This includes $1.5 billion under the last Ingraham administration, some $2.218 billion under its Christie successor and, potentially, $657 million during the first three years of the Minnis administration if projections hold true.
This means that more than half of the national debt incurred since independence will have been accumulated in just a 13-year period. The sharp upturn in the Bahamas’ nominal national debt was also noted by the IDB paper, which found it had risen by more than 50 per cent - from $1.7 billion to $4.2 billion - in the decade between 2002 and 2012.
The Bahamas thus finds itself in a cycle of low GDP growth, high deficits and rising debt, and double-digit unemployment, all of which point to the need for a rapid economic expansion to reverse this nation’s slow decline.
Edison Sumner, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chief executive, yesterday backed the implementation of a Fiscal Responsibility Act and fiscal rules on the grounds that a “hard line” needed to be taken to turn the situation around.
He acknowledged that the Bahamas’ debt-to-GDP ratio was already “extremely high”, and numerous percentage points “above what is the standard and acceptable”, while calling for revenue and spending measures to address it.
“I think there has to be a concerted effort to see whether we can cap spending, external spending and capital development, and re-examine our spending of resources over the next several years to bring the debt-to-GDP ratio back in line with the standard, the norm,” Mr Sumner told Tribune Business.
He urged the Government to devise a Fiscal Responsibility Act and rules in conjunction with the private sector, and added: “It might not be what those in government want to hear, as it will limit what they can do without getting Parliamentary approval or going to the people to get a mandate, but we have to take a hard line and make the tough decisions to improve the economic situation.”
Comments
TheMadHatter 6 years, 10 months ago
Sumner is right we need a Fiscal Responsibility Act but we also need a Sexual Responsibility Act
But instead of doing this we will instead make noise and complain about Richard Lightbourne because he is a white man
and continue to live in poverty, feed our children salty Ramen Noodles and teach our young girls that in order to be considered a real woman they need to pop out a few puppies.
alfalfa 6 years, 10 months ago
I see why your moniker is The Mad Hatter. Richard Lightbourne made statements that were inappropriate, and you have continued in that vein. Women popping out puppies. Is that what humans are to you? How did you side track to Richard in an article that has to do with the country's financial woes? Mad,
OMG 6 years, 10 months ago
There is no time for rhetoric, it is time to investigate all the missing money, name and prosecute the thieves and start doing the job in hand. Sorry to say but cancel the 52 week employees who in many cases have nothing to do. Do not rehire . Retire the employees rehired after reaching retirement age, stop expensive projects such as the mini hospital in Palmetto Point and elsewhere. So many expats and Bahamians are getting their money out of the country in anticipation of further downgrading and devaluation. Christie and his rougues have a lot to answer for and have handled the national purse like a kid with his first credit card. Despite record VAT and the many other tax increases we still have a crumbling infrastructure. Take central Eleuthera as an example where a regular water supply is something of a novelty and no two days go by without a water supply yet nothing is done.
Porcupine 6 years, 10 months ago
I heard the Deputy Prime Minister speak on ZNS about the country's finances and his plan for the future. I am sorry to say that I don't think he gets it. Looking at the trend over the last few years, I see no change in direction. Wishful thinking will get us nowhere. I seriously doubt Mr. Turnquest understands basic economics and simple fiscal math. I am not hopeful for this country's future. I would like to think otherwise, but the problem is, I think.
ThisIsOurs 6 years, 10 months ago
No he doesn't, I fear he us woefully unprepared for the job. Told a friend as much months before the election, I got the impression he was more into media presence than anything.
I hope Dr Minnis realizes it by next week. We don't have time for pleasantries. I listened to the Financial Voice yesterday and Rupert Pinder said we have to take a serious look at our Balance of Payments and our foreign reserve levels. He said historically we balance our appetite for imports against incoming tourism dollars and FDI investment. He stated further that tourism numbers are falling so there's greater pressure on foreign investment.
Peter Turnquest on the other hand says, we have to reduce our reliance on FDI. it "sounds" good and the Bahamian public likes to hear it, but is it realistic?
I honestly think KP is still in campaign mode, and figures he will campaign himself through the next five years saying things people want to hear. Act quickly Dr Minnis. Place him where he fits, get someone qualified in that finance ministry. Can anyone believe he stood up and read that budget in the HOA and said "we'll hold the line on the previous years spending???
Publius 6 years, 10 months ago
My friend, I don't think you realize just how much Dr. Minnis does not know about very many things as pertains to governance. I meantime agree with your comments on Turnquest.
ThisIsOurs 6 years, 10 months ago
Possible, I don't know enough about Dr Minnis behind the scenes
ThisIsOurs 6 years, 10 months ago
I told a friend today that we have six months if that to show the rating agencies that we have a grasp of the economy. Told them KP needs to go now, he won't get it in six months, and if I non financial person can see it, the rating agencies can see it
tell_it_like_it_is 6 years, 10 months ago
Certainly the Deputy PM is disappointing. No real plans to address national debt. Now the other shoe has fallen. Scary times indeed... it seems there's a great deficit in the ability to anticipate the aggregate grave financial issues we will face shortly if we don't turn this situation around. WAKE UP Bahamas.
alfalfa 6 years, 10 months ago
Every one of you appears to think that our Minister of Finance/Deputy Prime Minister is incompetent, incapable, and disappointing. Does anyone have an alternative solution to our financial woes, or are we satisfied to criticize every move that the government makes. We did the same thing to the PLP and it appears that your opinions are, that the newly elected FNM are no better. What is your collective solution to our fiscal woes? Don't just criticize, offer viable alternatives.
ThisIsOurs 6 years, 10 months ago
I don't think KP is incompetent, he's a millionaire after all. BUT I do think he is ill suited to be minister of finance. You need a clear strategic thinker like Gowon Bowe or Dr Sands in that post. Normally I would "give him a chance", but I sense that we don't have any tine to "get it wrong"... These people had two years to plan and he comes in and reads the PLP budget word for word and when questioned about it he say dis what they give me ???
My advice move KP to "Deputy Overseer in Chief" and appoint someone as Minister f Finance that the resting agencies can have some confidence in. My opinion is that our downgrades were all about lack of confidence in the people in charge and their lying ways, absolutely nothing to do with Bahamar. KP won't help. Unfortunately that's the facts....well my belief:)
I already gave my suggestions on another article
JohnDoe 6 years, 10 months ago
The numbers don't lie and our current issue is not one of confidence but one of deteriorating fundamentals. The budget deficit is projected to be over 50% higher than earlier projections. Gowan Bowe, the purported strategic thinker says our fate with the rating agency will depend on how good of a story we have. That is the biggest joke every. During the recession between 2007 - 20012 HAI increased debt by $1.5Bn and he built roads and undertook other capital infrastructural projects. From 2102 - 2017 PGC would have added about $2.3Bn in debt and this is after after he introduced VAT, he invested zero in infrastructure and to top it off he wants to implement National Health Insurance. So if we collected $1Bn in VAT revenue then compared to HAI, PGC's nominal debt would be about $3.3bn. This ain't no perception loop or confidence referendum as if the rating agencies are unfamiliar with these facts. Bowe, in my view is more a talking head charlatan than a strategic thinker. We must remember debt is a dependent variable driven by the independent variable of our ever increasing deficits. What we are up against is much bigger than KPT, FNM or PLP. In short, the trending evidence suggest that at the current economic growth rate this country cannot sustain or support its recurring level of expenditures. This is all about our expectations as Bahamians, our desire to emulate the standard of living of our neighbors in the USA and our unwillingness to accept ultimate and personal responsibility for our affairs. The politician that explains that to us has zero chance of being elected. We prefer slick talking charlatans who will tell us that we can have our cake and eat it to.
ThisIsOurs 6 years, 10 months ago
I'm not saying the facts on the ground aren't what they are, but I do believe confidence in the administration to do the necessary played a part. If the PLP had won I believe we would have received a downgrade from Moody's almost immediately (also I'm not saying Gowon "literally", just someone who methodically lays things out like him, I don't agree with everything he says, quite disappointed that he aligned himself with those people and became a. PLP apologist, but I like his general approach)
OMG 6 years, 10 months ago
Not incompetent BUT they have to act and act now. No we will not pay all the incoming bills without careful scrutiny, no letting all the recent pre election hires stay in place, fire the consultants, terminate the director of education who is 2 years past retirement, IN ESSENCE CUT CUT AND CUT AGAIN expenditure------- There is no other choice.
ThisIsOurs 6 years, 10 months ago
Agreed and even greater than the act itself is the signal it sends that you serious about getting this deficit under control
JohnDoe 6 years, 10 months ago
You are kind of missing the point. If you unilaterally breach a fundamental condition of a valid contract, then what do you think would happen? The prior government may have been corrupt and these contracts may have been self-serving but there are no legal or statutory constraints that would make these contracts void or voidable. That is first and foremost what needs to be changed asap. Successive governments have used the public treasury as a slush fund to finance their elections. This must stop.
banker 6 years, 10 months ago
Very cogent observation, and a subtle one that most people miss. Oftentimes there is no legal standing for cancellation, or the penalties are such that it is prohibitive to do so.
DDK 6 years, 10 months ago
Quite right if, in fact, said contract are valid. If they are not valid, sorry.
JohnDoe 6 years, 10 months ago
We were at this exact place 10 years ago with stop, review and cancel. If HAI was really serious about this he should have passed legislation making contracts executed 3-6 months before a general election voidable by the incoming government unless certain pre-defined criteria were met. If Minnis is serious and truly cares about electoral process reform and fiscal policy abuse he must pass this legislation now. That is what would imbue confidence from the rating agencies, our willingness to make systemic and structural decisions that will impact fiscal policy not just cuts from a stop, review and cancel look-a-like where the penalty for cancelling is just as much as the contract, if not more.
Economist 6 years, 10 months ago
The auditing of the various Government Departments is a good start. Prosecute those who are guilty. If we don't prosecute the problems will continue.
I agree with Edison Sumner, we need to pass a Fiscal Responsibility Act right away. We also need to pass the Freedom of Information Act, amended as recommended by the NGOs.
The above three things would go a long way to putting the Country on a better financial footing.
banker 6 years, 10 months ago
Not Good! WTF was PKT thinking?
TheMadHatter 6 years, 10 months ago
Alfalfa....to answer your question...my comment is relevant because it doesnt matter how much money KPT can pull out of a hat in this economy. More money flowing will only result in more puppies poppin and more Ramen Noodles needing to be purchased via $US going to the wholesalers in Miami. We will still be left as beggars. Next time i stickin with the PLP and just pretend in my mind that there is a gold rush. See that shiny gold? Look over here. Look over there. More gold than you can eat.....i say.
DDK 6 years, 10 months ago
Why does no one mention the drain on the economy that is the numbers houses? The closure of these menaces should be at the TOP of the Things To Do To Get On The Road To Recovery List. The Immigration problem which is also a HUGE drain on the economy is very hush-hush as well. Which of our esteemed politicians is going to take the bull by the horns on these matters and get on with it? Ignoring these issues does not make them go away, obviously the longer they are politically correctly ignored, the worse they become.
I would also think the IDB and their kind would like to see some progress on these issues, since we regrettably must stake so much on their opinions and ratings.
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