The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former finance minister has branded as “incredible” FNM claims that the Public Treasury is broke, warning that this does a disservice to whoever is elected as the Bahamas’ next government.

James Smith, also an ex-Central Bank governor, told Tribune Business that the allegations were being made by persons who should know better, as the Government had numerous methods for financing its obligations.

“I find it so incredible that people wishing to run a Government will be making these comments,” he told this newspaper of the ‘Treasury broke’ allegations. “You can only regard that as rally talk.

“If that’s the case, what happens if you win and have had less experience of what’s going on for the last year or so. It will take time to work things through.

“Some of these people know this. It can only be rally talk. I think that’s probably only to scare the uninitiated. It doesn’t help whoever comes back as government having to explain this.”

Mr Smith, who has served the two Christie administrations as both minister and consultant, was speaking after former prime minister, Hubert Ingraham, suggested on the campaign trail that “the money ain’ there” in the Public Treasury.

He suggested that the next government will be unable to give police officers overtime pay on May 29, as promised by Prime Minister Perry Christie, adding that the next administration would have to “borrow tens of millions of dollars to pay bills that the PLP government is now unable to pay”.

Many observers have questioned whether the next government will be able to afford all the pre-election spending commitments unveiled by the Christie administration, including promotions and pay rises for Royal Bahamas Police Force and Royal Bahamas Defence Force officers.

These fears have been heightened by the Government’s current fiscal predicament, with annual deficits still exceeding $300 million and the national debt growing past $7 billion. There has been frequent talk within the private sector about the Government having cash flow problems, with businesses having to wait for payments and VAT refunds.

Mr Smith, though, said the Government had numerous means through which to meet its spending obligations and commitments.

“The Government, like any other government, has the capacity to meet payroll and payments through many means,” he told Tribune Business. “It’s got a lot of wiggle room, because you can’t afford not to meet your obligations if you’re

“It collects revenue every day, it has overdraft facilities, and it has the ability to issue short, medium and long-term paper. Nothing restricts that. Even if you’re worried about the economy, the market prices the paper accordingly.”

Mr Smith added that in a “worst case scenario” the Bahamas could even seek to access funding from multilateral agencies, such as the International Monetary Fund’s (IMF) special drawing rights (SDRs), or the World Bank and Inter-American Development Bank (IDB).

Asked whether the ‘broke Treasury’ comments could attract the attention of Moody’s and Standard & Poor’s (S&P), and potentially further impact the Bahamas’ sovereign credit rating, Mr Smith suggested that the financial markets would be able to distinguish reality from campaign talk.

The same, he added, went for the wider capital markets, and both domestic and foreign holders of the Bahamas’ debt. “I think it’ll have very little impact on members of the capital markets,” Mr Smith said.

The former finance minister, though, acknowledged that he was uncertain as to the financial impact of the Government’s pre-election spending promises as he had seen no “full costing”.

Mr Smith reminded the Government that it had an obligation “not to blow a hole in the Budget” given the Bahamas’ fiscal predicament, which has worsened beyond initial expectations and has yet to show signs of turning around.

“You always see these things at election time and promise time,” he told Tribune Business, “but the Government has a larger obligation to itself to ensure you don’t blow a hole in the Budget.

“You can say what you like, but when you get to the nitty gritty the reality bites in when you take the reins again.”