By NEIL HARTNELL
Tribune Business Editor
Fiscal observers yesterday warned that projections showing The Bahamas’ debt ratios will be kept in check are “very optimistic” given that this requires surpluses three times’ higher than achieved before.
Robert Myers, the Organisation for Responsible Governance’s (ORG) principal, told Tribune Business that estimates forecasting the Government will run nine-figure primary surpluses from 2022-2023 onwards would likely be challenged by a hurricane or global economic recession.
The government’s just-published Fiscal Strategy Report projects that the primary budget balance, which measures by how much revenue exceeds/falls short of non-interest recurrent spending, will move back into a $76.7m surplus in 2021-2022 following two years of deficits that peak at over $300m due to Hurricane Dorian restoration costs.
These surpluses are forecast to increase to $159.2m in 2022-2023, then grow to $278.2m the following year and $313.3m come 2024-2025. However, Mr Myers said the latter figure was almost three times’ higher than the $116.9m surplus achieved in 2018-2019, raising doubts as to whether the government’s projections will be met.
“You’re talking $300m for each of those years,” he told Tribune Business. “You’re talking about creating a primary surplus three times’ what they’ve proven they’ve been able to achieve. That’s pretty tough, and also doesn’t seem to take into consideration any downside risks in the global economy and environmental landscape.
“I think it’s overly optimistic personally, but I’m not looking at the nitty gritty. If there’s no risk contingencies built in they are highly optimistic.” Recent history suggests that The Bahamas, which has been struck by major hurricanes in four of the last five years, will likely encounter at least one major storm during the next five years.
Mr Myers pointed out that the prospects of a correction in the global economy were also reasonable given that there has been no major global recession since 2008-2009, while high crime levels, the raised cost of doing business and impairments to the ease of doing business all represented further threats to the government’s fiscal outlook.
The Fiscal Strategy Report makes clear that the Government is relying on higher economic growth post-2020, coupled with last year’s upward revision to Bahamian GDP by the Department of Statistics, to keep the country’s direct debt-to-GDP ratio - which measures increases in the national debt in proportion to economic output - in check.
The report projects that the national debt as a percentage of GDP will rise from 60.4 percent at year-end 2018 to peak at 66.2 percent at year-end 2021, as Dorian reconstruction spending outpaces economic growth, only to drop to 64.7 percent at year-end 2024 as economic expansion picks up.
Tabled in Parliament last week, the Fiscal Strategy Report reveals that the Government must run a primary surplus averaging 1 percent of GDP - some $100m to $130m - per year during the five-year period between 2019-2024 if it is to bring the debt-to-GDP ratio back to the 60 percent range.
Given that excessive post-Dorian spending will dominate the first few years of that period, the report says the Government will have to “back load” its primary surplus - which measures the difference between its revenue income and non-interest expenditure - towards the end of that period.
“If the debt-to-GDP ratio is to converge back to the 60 percent of 2018, a primary surplus averaging 1 percent of GDP will have to be maintained during the 2019 to 2024 period,” the Fiscal Strategy Report said.
“As the Government will inevitably have to increase spending during the next two to three years to respond to the needs of the country following the hurricane, much of the adjustments to achieving the average primary surplus of 1 percent of GDP would have to be back loaded to the outer years.
“Given that the primary balance ratio for the period 2019 to 2021 is estimated to average -0.7 percent of GDP, back loading the adjustment to reach the 60 percent debt ratio by 2024 translates into achieving a higher primary surplus averaging 2.7 percent from 2022 to 2024.”
Rick Lowe, an executive with the Nassau Institute think-tank, yesterday argued that reducing the size of government, together with improvements to the ease of doing business and getting the economy moving, were critical to The Bahamas escaping a looming fiscal crunch.
“They can’t think they can extract more taxes and succeed. That’s not an option,” he told Tribune Business. “They say are taxes are low compared to the region but that’s a bit misleading. I think there’s so many levels of taxation here. I think they could increase the volume of imports by lowering taxes, and that will give them more money and taxes in reserve.
“Until they do something seriously with the size of government nothing is going to change. It’s a huge deficit decade after decade, and the size of government keeps increasing. I’m willing to bet they’ve increased the number of government employees in spite of Dorian, not because of it.
“Fiscally, I think we’re in trouble and have been in trouble for quite a while. It’s just that the cracks are beginning to appear now.... They don’t appear to be changing the ledger on the other side, and projections are not worth the piece of paper they’re written on. We see that every month with ours. You need to do them but it’s not money in the bank. It’s a tough road.”