The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

There is "no way in hell" that the Bahamas can take comfort in its improved fiscal ratios via the upward revisions to GDP data, a governance reformer warned yesterday.

Robert Myers, a principal with the Organisation for Responsible Governance (ORG), told Tribune Business that the lower debt-to-GDP and other reduced ratios made little difference given that the Bahamas "already has one foot over the edge of the precipice".

Describing the near 28 per cent increase in Bahamian GDP as "a waft of good news", Mr Myers acknowledged that it may help "buy us some time" to enact meaningful fiscal reforms and appease the international credit rating agencies.

Pointing out that the $7.2 billion-plus national debt was continuing to increase, regardless of the improved GDP numbers, he reiterated that the Bahamas' key objectives remain a narrowing and elimination of the annual fiscal deficits, plus faster economic growth rates.

Responding to the Department of Statistics' improved GDP figures, Mr Myers told Tribune Business: "There's no way in hell that you can have any complacency in government.

"We're already beyond; we're in the position of no return. Maybe the numbers cause an improvement of a few percentage points, and help buy us some time, but they don't pull us back from the precipice.

"That move might give us a sigh of relief, but by no means does it mean we're anywhere in the clear. We still have a lot of debt and deficit problems, and contingent liabilities are increasing because of pension liabilities that are not being frozen. We have to cap these pension plans. All these things are out of whack."

The Department of Statistics said last Friday that the inclusion of new data sources, and use of different methodologies, had resulted in a near-28 per cent upward revision to the Bahamas' GDP numbers from 2012 onwards.

This resulted in 2012 GDP, or total economic output, increasing from the original $8.4 billion to $10.721 billion. And, given that GDP is the denominator, the increased economic output means an automatic improvement in the Bahamas' debt-to-GDP and other key fiscal ratios.

The Ministry of Finance, in a statement on the Department's national accounts report, confirmed that the Value-Added Tax (VAT) returns and filings from around 6,500 registrants had provided much better data on the level of economic activity occurring in the Bahamas.

Using the nominal GDP figures, which include inflation, the Ministry said the new figures meant the 2012 national debt-to-GDP ratio had been revised downwards to 46.7 per cent, compared to the earlier 59.6 per cent estimate. Likewise, the direct charge on government, which strips out debts it has guaranteed on behalf of the public corporations, fell from 52.4 per cent to 41 per cent.

When it came to the 2016 figures, the Ministry of Finance said the debt-to-GDP ratio had dropped from 80.8 per cent to a more acceptable 62.6 per cent. And the Government's direct debt had fallen from 72.4 per cent of total GDP to 56.1 per cent.

Tribune Business's own calculations, taking the $7.263 billion national debt at end-June 2017, and the $10.22 billion in 2016's real GDP, pegged the debt-to-GDP ratio at 71 per cent in real terms - still above the 70 per cent 'danger threshold' that marks the territory where countries could lose control of their fiscal affairs.

Using 2016's nominal GDP of $11.262 billion produced a debt-to-GDP ratio of around 64.5 per cent, still slightly higher than the Government's own.

Mr Myers, though, told Tribune Business that the revised GDP numbers and fiscal ratios did not change the fundamental problems still facing the Bahamian economy.

With the Department of Statistics report confirming that the Bahamas had been locked in recession for the three-year period between 2013-2015, the ORG principal emphasised that annual GDP growth of 5 per cent-plus remained vital to tackling the country's unemployment and social problems.

And, with the projected 2017-2018 Budget deficit of $323 million set to add to 'red ink' of similar magnitude incurred by the Christie administration, the Bahamas' national debt will continue to increase back towards the levels just 'escaped' unless eliminated. Some $4.4 billion will be added to the national debt in 13 years if the current government's Budget projections come true.

Urging the Bahamas to focus on the future, and not the recent past, Mr Myers said: "We've got a waft of good news, but not enough to make anyone at all jubilant.

"Anybody that's jumping for joy doesn't understand how economies work and adjust. Anyone jumping for joy, thinking we're saved, does not deserve a position in the Ministry of Finance or anywhere else for that matter."

While conceding that the GDP revisions amounted to "a debt-to-GDP windfall" of around 10 percentage points, the ORG principal added: "We've got to do everything we can to drive GDP up; we've got to do everything we can to reduce the cost of government; and have got to do everything we can to reduce and eliminate the deficit.

"That's a slow process. Let's be realistic; we're not going to close the deficit gap overnight. If we cut expenditure by 30 per cent that might cause a recession, but if we cut by 3-5 per cent per annum we'll get where we need to be going in several years' time."

The Government's projected $2.67 billion in recurrent spending, and $230 million in capital spending, for 2017-2018 are equivalent to 28.4 per cent of the Bahamas' 2016 real GDP. Mr Myers said cutting by expenditure by 5 per cent annually would reduce the Government's size, as a percentage of the economy, to 27 per cent in 2018-2019 and 25.6 per cent in 2019-2020 using 2016 real GDP as the basis.

Should the Bahamas reverse its economic decline and start generating economic growth, Mr Myers said Government spending as a proportion of GDP would be even lower. And improved economic growth will also drive the debt-to-GDP ratio and other fiscal indicators lower.

With real GDP pegged at $10.221 billion in 2016, he warned that Bahamian economic output needed to expand by more than $500 million - half-a-billion dollars - in 2017 if it is to hit the 5 per cent growth target set by the IMF to absorb all school leavers and cut existing unemployment in half.

"That's the target," Mr Myers told Tribune Business. "Anything falling off that, we'll be short. We need to be climbing by 5 per cent per annum, which is huge, and eliminate that deficit gap. We have a tremendous amount of work to do.

"It's simple but it's complex. It's not easy to do these things. These are mammoth tasks, but if we don't we will continue to head to the precipice. We've already got one foot over the edge, and that's what we're trying to pull back from.

"We've got one foot over the edge, and don't know how stable the ground is under the other foot on the cliff. My biggest fear is a category five hurricane hitting Nassau, which completely removes the ground on the edge of the cliff."