The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

The Bahamas has achieved “remarkable national development” that has been financed with just 18 percent of national income, an ex-finance minister and Central Bank governor says.

Sir William Allen, addressing a University of The Bahamas Government and Policy Institute Forum featuring himself and three other former Central Bank governors, said: “We have been funding our national development, our governance, by about 18 per cent of national income. It is not likely happening anywhere else on the globe.

“That we have actually achieved some respectable level of nation development is remarkable. The real crisis may be that we have achieved so much by so little that the argument for change may be undercut, but the case for change is real.”

Pushing back against criticism of the Bahamian economy, Sir William, who served as Central Bank governor from 1980-1987, said: “I take issue with much of the criticism levelled at the Bahamian economy, most of the time especially regarding its lack of diversification and its perceived weakness in its revenue-generating capacity.

“On a per capita basis it is difficult to imagine a more diversified economy than The Bahamas with its very large-scale tourism facilities, a very large-scale transshipment operation, very influential financial services, one of the largest ship repair facilities on earth, a domestic aviation industry with seven independent operators and a myriad of small and medium-sized services that support the rest of the economy and, of course, the public sector. It is difficult for me to understand the concept of The Bahamas needing to diversify.”

Julian Francis, who served as Central Bank governor from 1997-2005, said that while he did not entirely disagree with Sir William’s view, this nation was not producing opportunities for its people.

“Enterprising young Bahamians are looking outside The Bahamas for opportunities,” he added. “If we ask ourselves why this is, I think we come to the conclusion that our economy is not producing opportunities for our people, generally speaking.”

He continued: “There are many Bahamians throughout this country living below the poverty line, in some cases abject poverty, and in some cases there are enclaves where there is great wealth. Our economy certainly, for at least a decade now, and probably much longer than that, has been slowing down and grinding to virtual halt. The question then becomes how do we look at revamping the policies and the underpinnings which have guided the economy up to this point.”

Mr Francis argued that The Bahamas has failed to put in place institutional arrangements which protect against government abuse of fiscal monies. “Fiscal policy is incredibly important, and what we in The Bahamas have failed to do is put in place the institutional arrangements which protect against the Government of the day abusing fiscal arrangements,” he said.

“This is a very serious problem. I am not pointing the finger at any particular government. We have all behaved badly. It wasn’t long ago when The Bahamas had virtually no debt. If you look at it today we’re maybe above 80 per cent and still going strong. This is not the way to build an economy and not conducive to an environment that builds an economy.”

James Smith, CFAL’s chairman and Central Bank governor from 1987-1997, pointed out that it was important to consider the characteristics of the Bahamian economy, highlighting four of them.

“The Bahamas has a fixed exchange rate pegged to the US dollar, and also permits US dollars to circulate freely in the economy. Secondly, our economy is extremely open in that 85 per cent of all the goods and services we consume locally is imported and, consequently, changes in the prices of imports could affect your price levels here even though you doing all the right things,” he said.

“We don’t export a lot of things, and this has some implications for our ambitions to join the WTO, which essentially opens markets and flow of goods across borders, but we have very little to exchange for what we are importing. We also live in the hurricane zone, so you can have the perfect economic policies and any time between June and November, a hurricane could wipe off $400m of your GDP.

“Taken together, these factors tend to challenge the standard of fiscal and monetary policies used in developed countries and local authorities must utilise policies, means and methods most suitable for local conditions.”

Wendy Craigg, the first female governor of the Central Bank, added that fiscal and monetary polices are two important elements that influence economic growth. She praised the Government for its efforts on fiscal responsibility legislation, adding: “I believe this sets a new framework for all governments now to strive to ensure that we achieve sustainability in our fiscal position.”

Speaking to the Central Bank, where she served as governor for a decade, Mrs Craigg said: “I believe the Central Bank has done very well with the tools at its disposal to manage credit and liquidity. I think as long as the fixed exchange rate remains in place, the Central Bank’s main concern will be marinating stability in domestic credit conditions.

“We also hear that we need to open up a bit. There is a lot of clamouring in the private sector to be able to make investments overseas and being able to obtain foreign currency just for general use without being restricted. Some of us have different views on that.”

She added that relaxation must be gradual, saying: “We can’t just open the flood gates. I support what the Central bank is doing with the gradual relaxation of exchange controls.”