The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas needs to cut spending by 5 per cent a year during the Minnis administration’s five-year term in office unless economic growth suddenly picks up, a governance reformer believes.

Robert Myers, a principal with the Organisation for Responsible Governance (ORG), said such a target was “aggressive but doable” given the level of waste and inefficiency known to exist within the Bahamian public sector.

He added that the Government would be able to “ease off” on the extent of such spending cuts should GDP growth exceed expectations, but warned that this nation had no choice but to put its fiscal house in order with more than half a billion dollars being spent annually on debt servicing costs alone.

Mr Myers also said there would be “pretty significant cause for concern” if the new government fails to mention the introduction of a Fiscal Responsibility Act, a key campaign pledge, in this week’s 2017-2018 Budget presentation following its omission from the ‘Speech from the Throne’.

K P Turnquest, the Deputy Prime Minister, tells Tribune Business today that a Fiscal Responsibility Act “isn’t going anywhere” and that the new administration remains fully committed to it (see other article on Page 1B), but Mr Myers and others are watching eagerly to see whether it follows through.

With the Bahamas unable to ‘kick the can down the road’ much longer, Mr Myers told Tribune Business: “It’s pretty significant the reduction in government spending that’s required over time.

“I think we’ve got to do 5 per cent a year over the next five years, and I think that’s doable. That’s aggressive but it’s doable, and that’s the direction that it needs to go in. If we don’t do that, that doesn’t get us where we need to go.”

Based on the 2016-2017 fiscal year’s $2.262 billion recurrent spending, a 5 per cent expenditure cut as suggested by Mr Myers would slash that figure by $113.1 million. The Nassau Institute executive, Rick Lowe, suggested cuts of a similar magnitude to Tribune Business on Friday.

The former Christie administration set an unwanted record by adding more than $2 billion to the national debt during its five-year term, taking it past the $7 billion mark where it continues to grow, despite having the benefit of $756 million in net Value-Added Tax (VAT) revenues over the past two years.

With a small, narrow-based economy, the Bahamas cannot withstand the persistent drain of $300 million-plus fiscal deficits for much longer, especially when this is added to its relatively low economic (GDP) growth and continued double-digit unemployment.

“If we don’t get our fiscal house in order we will fail,” Mr Myers told Tribune Business. “Right now we are looking at 5 per cent per year spending cuts, but if we can get economic growth up significantly - to 5.5 per cent per annum - you can ease off that a little bit.

“But, right now, we need to be at that number. If the economy improves and we get productivity up, and you can see yourself doing better than that, you can slow it down.”

The Bahamas has enjoyed four consecutive years of negative or no GDP growth from 2013-2016. While the IMF projects that this nation’s economy will expand by 1.4 per cent in 2017, increasing to 2.2 per cent in 2018 as Baha Mar becomes fully operational, this is forecast to again tail-off to between 1 per cent to 1.5 per cent - well short of the 5.5 per cent needed to absorb all new workforce entrants and slash the existing jobless rate by 50 per cent.

Mr Myers also pointed to the Bahamas’ “huge” debt servicing costs, which in the 2016-2017 stood at just under $559 million - equivalent to between 6-7 per cent of Bahamian GDP. That represents total debt servicing (interest) and principal repayment costs combined, and these are forecast to remain high, standing at $547 million and $507 million in 2017-2018 and 2018-2019, respectively.

“That’s why the International Monetary Fund (IMF) and the Inter-American Development Bank say it’s dangerous,” he added, noting that the Bahamas’ debt-to-GDP ratio remains well over 70 per cent. “It’s hard to come back from. It’s a threshold that’s there for good reason. You just can’t catch up. So much of our GDP is going to debt. That’s why you’ve got to keep within those thresholds.”

Mr Myers, meanwhile, suggested that the Speech from the Throne’s omission of a Fiscal Responsibility Act was likely an “oversight”, given that it was a commitment made in the Free National Movement’s (FNM) campaign manifesto.

He added that such legislation would work in tandem with a properly-functioning Freedom of Information Act, and said: “Hopefully, the Prime Minister starts talking about a Fiscal Responsibility Act in the Budget.

“I think it’s coming. I hope they’ll bring that up in the Budget remarks. If it’s missed out, there will be reason for some pretty significant concern...If it doesn’t come up in the Budget, there’s reason for concern.”

Mr Myers said the Government did not have to wait for legislation to start acting responsibly over the Bahamas’ finances, adding that demonstrating prudence via the Budget would be especially timely with the international credit rating agencies, Moody’s and Standard & Poor’s, set to visit this nation in the summer.

“If the Budget starts to do the same thing that would one do through a Fiscal Responsibility Act, that also helps,” he told Tribune Business. “If they’re actually responsible regardless of any Act, that’s the start of positive signs.

“It’s not that the Government can’t start acting responsibly and doing the right thing. That will be well received by the rating agencies. Living within our means, and creating accountability and transparency while reducing costs, that will be a stronger indicator to the rating agencies than legislation.”