By NEIL HARTNELL
Tribune Business Editor
THE Government will realise $75 million in annual interest savings if it returns the debt-to-GDP ratio back to 30 per cent, removing "the albatross around the neck" of the Bahamian society.
K P Turnquest told the House of Assembly that such a ratio slash was "preferable" and should be viewed as the Government's target, while acknowledging that "much work" is required to achieve this over the long-term. With the government's current direct debt-to-GDP ratio standing at 57.6 per cent, thanks to the Department of Statistics' revised GDP figures, the Government's current debt servicing costs stand at 14.5 per cent of annual revenues.
This compared to 10 per cent at a 30 per cent debt-to-GDP level, meaning that the Government is currently spending 14.5 cents of every dollar earned to simply service its existing debt as opposed to 10 cents when this was at more acceptable levels.
'Were it possible to return to a burden of debt under which interest payments again accounted for 10 per cent of revenues, our annual interest payments would be appreciably reduced," Mr Turnquest said. "At the 2017-2018 level of revenues, the savings would be on the order of $75 million.
"Those are precious financial resources indeed that could make a significant contribution to the advancement of the Government's agenda for growth through, for example, supplementary investments in education, health or infrastructure."
The Deputy Prime Minister thus illustrated how rising debt servicing costs suck huge sums of money away from critical public services and infrastructure, showing why it is essential for the Government to slash its $7.5 billion national debt.
Mr Turnquest said the Minnis administration was focused on eliminating the primary deficit, which measures the different between revenues and recurrent spending (stripping out interest and debt principal repayments from the latter).
With the primary deficit for the 2016-2017 fiscal year standing at 3.3 per cent of GDP, or more than $300 million, Mr Turnquest warned that the Bahamas' debt-to-GDP ratio would hit 100 per cent within nine years if this performance continued unchecked.
A 100 per cent debt-to-GDP ratio would effectively mean that the Government's debt burden is equivalent to the size of the Bahamian economy's output, and lead to what the Deputy Prime Minister described as "a vicious dynamic" where the debt "feeds upon itself" and creates a spiral of ever-higher interest costs, deficits and unpaid debt.
Emphasising the Minnis administration's determination to avoid such a scenario, Mr Turnquest warned: "That, needless to say, would have grave, deleterious consequences for both Bahamian society and our economy. It would also critically impair the ability of Government to finance the economic and social programmes and services that are cherished by our citizens."
Rick Lowe, a director with the Nassau Institute think-tank, told Tribune Business that consistent $300 million-plus deficits were pushing the Bahamas "ever closer to that precipice we don't want to cross".
"That's the danger without any encouragement to create legitimate investment," he warned. "The worst-case scenario gets presented; the devaluations; the downgrades; the higher taxes - all of which we don't want more of.
"How they get it under control I don't even know, but they've got to do something. They can't keep raising taxes. They've got to find a way to encourage people to invest."
Mr Turnquest yesterday continued to blame the former Christie administration for the Bahamas' present fiscal crisis, slamming its "nonsensical and shoddy financial husbandry" during its 2012-2017 term in office.
"They felt no qualms in spending like drunken sailors without any concern whatsoever for the future generations of Bahamians that will be obliged to pick up the tab," he added.
"Clearly, the former administration were apparently so obsessed with keeping power that they were prepared to destroy the foundations of our nation's economic well-being to stay in office."
Mr Turnquest said the Revenue Enhancement Project team established by the Christie administration cost more than $1 million per month to run, essentially meaning that monies it was collecting were going straight back out to pay its costs.
Suggesting that it was set up without Cabinet approval, with the expense largely stemming from the hiring of foreign consultants, he added: "The initiative itself makes sense - and it is something the Government is continuing much more economically - but it made no sense to create a revenue enhancement project where a significant quantum of the savings went right back to the cost; costs again for which no Cabinet approval was given, and for which most of the costs went to foreign consultants."
Mr Turnquest also blasted the Christie administration for increasing the Government's wage bill by $27 million during its last year in office, as a result of hiring 1,606 temporary and contract workers, when "prudence and discipline should be the order of the day".
He argued that many persons were hired for no obvious duty and purpose, and questioned: "What were they thinking, Mr Speaker? What was their motivation to keep doling out the borrowed cash while Rome crashed and burned?"
Mr Turnquest said the Minnis administration was also investigating whether the Government still owed $17.5 million allegedly committed by the Christie administration to support the printing of the Bahamas Handbook and in-room tourist guide. Some $18 million was committed, but just $500,000 paid.