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'The Perfect Storm' For Our Economic Viability

Finance Minister K Peter Turnquest.

Finance Minister K Peter Turnquest.

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Hurricane Dorian was yesterday branded “the perfect storm” to derail an economic and fiscal turnaround that the government wanted to be natural disaster-free for “at least another year”.

KP Turnquest, deputy prime minister, told Tribune Business that the devastating category five storm represented “a significant setback” to the Minnis administration’s efforts to “firmly establish” its Fiscal Responsibility framework and consolidation plan.

He revealed that it was likely that the government will have to borrow beyond its 2019-2020 budget-approved limits to finance Dorian restoration, although local - as opposed to foreign currency - debt-raising operations “would be our preference”.

While unable to provide figures for Dorian’s likely damages and the amount of extra borrowing the government will have to undertake, as this is still being determined, Mr Turnquest said it did “not at all” anticipate it would have to seek “debt forgiveness” or rescheduling from local and international creditors for its $8bn-plus liabilities following the storm.

He added that The Bahamas was “a very long way” from having to undertake such drastic measures, or seek assistance from the likes of the International Monetary Fund (IMF), even though one of his predecessors as minister of finance suggested that such pressures now exist.

James Smith, who held the post during the 2002-2007 Christie administration, told Tribune Business in a recent interview that both the fiscal deficit and national debt were likely to significantly increase in Dorian’s wake due to the combination of restoration spending demands and reduced tax revenues imposed on the government.

While acknowledging that the government has to meet the “essential needs” of its people, and repair public infrastructure, Mr Smith warned: “We have to be careful how we manage this... and not need to go to the International Monetary Fund, which is something we’ve avoided up until now.

“It’s extraordinary,” he added of Dorian’s devastation. “I totally sympathise with the position they’re in. It’s something nobody could have predicted. It’s going to take forbearance on the part of the entire population for the next three to four years.”

While the full scale of Dorian’s impact is unlikely to be revealed before the mid-year budget in February next year, along with the next quarterly fiscal update, Mr Smith said The Bahamas still had some breathing room due to the fact that around 30 percent of its debt is denominated in foreign currency.

“It’s really managing that and trying to avoid reaching that critical point,” he added. “Some of the international debt we ought to approach for forgiveness or rescheduling. We have some debt with the Chinese for the roads and the Inter-American Development Bank.”

Mr Turnquest, while emphasising that the Government was far from taking such measures, conceded that Dorian had dealt a significant blow to almost all aspects of the economy and public finances.

“It’s a significant setback,” he told Tribune Business, “and one that I’d hoped to get through at least another year without so we could set in place and firmly establish the Fiscal Responsibility parameters, but we don’t control the wind.

“Yet we have to deal with it. We’ll look at our fiscal plans, adjust them as necessary, account for it, and plot a path to get us back on track as soon as possible.” The deputy prime minister had previously said the Government’s finances were one Dorian-style hit from disaster, and that fear has now struck and become reality.

The Fiscal Responsibility Act mandates that the Government achieve a fiscal deficit equivalent to 1 percent of Bahamian gross domestic product (GDP), or $137m, for 2019-2020 but that target will inevitably be breached due to Dorian’s shock to the economy and wider society on Abaco and Grand Bahama.

Asked whether the Government will have to increase borrowing beyond parliamentary-approved limits, Mr Turnquest told Tribune Business: “We’re still working that out. Chances are that we will have to based upon the initial analysis. Again, that is something to consider once the full impact is known.

“We believe we’re going to be able to fund whatever we need to fund through the drawdown on the contingent line [the $100m IDB credit facility] we have, as well as the local market should the need arise. We believe we are comfortable in that envelope and will respond to whatever the needs may be.”

The Government can access ample excess liquidity in the commercial banking system, which stood at $1.855bn at end-July 2019. External reserves, too, were relatively healthy, standing at $1.583bn at the same time, and will likely gain a further boost from the multi-million dollar foreign currency reinsurance inflows that will materialise once claims start to be paid.

But, with much of Abaco’s economy totally obliterated by Dorian’s winds and storm surge, and Grand Bahama severely crippled, The Bahamas has - for the moment - lost the islands that were its second and third largest economies.

The reduction in economic activity will depress government tax revenues below projections, and this income will be further impacted by the tax breaks, incentives, and exigency orders granted to facilitate the rebuilding and restoration process in those islands.

Besides the revenue hit, the Government will also likely have to spend a nine-figure sum on restoring public infrastructure - roads, docks, bridges, airports, healthcare, water and electricity systems - in Dorian’s wake.

Much of this will be uninsured, including Bahamas Power & Light’s (BPL) transmission and distribution system. The state-owned utility’s cash-strapped state means that it will likely have to rely at least partially on the Government to finance repair costs that Paul Maynard, the Bahamas Electrical Union Workers (BEWU) president, yesterday suggested could hit $80-$90m on Abaco compared to BPL’s initial $20-$30m estimate.

Mr Turnquest yesterday acknowledged the possibility that BPL will need financial assistance from the Government to fund restoration, although he suggested it could get “wrapped up” in the proposed $450-$550m Rate Reduction Bond refinancing if the timing proved right.

Meanwhile, with much of Abaco’s population evacuating in Dorian’s wake, The Bahamas also faces the problem of finding jobs for the island’s 14,000 strong labour force and those who have left Grand Bahama - many of whom may elect never to return.

This, in turn, will increase the strain on the Government’s social security budget and the National Insurance Board (NIB), the latter of which will be faced with a significant spike in unemployment benefit claims.

Robert Myers, the Organisation for Responsible Governance’s (ORG) principal, told Tribune Business that Dorian’s total damages and economic losses have “got be in the billions”.

Describing the economic and fiscal fall-out as being “of great concern”, he added: “It’s going to be a real struggle and we will have to borrow money. We’ve lost the second and third largest economies, and have to re-stimulate. BPL will not be able to pay for it; Water & Sewerage, those guys will need money to fix it.

“It’s the perfect storm and the big one. It’s a question of how we manage our way out of it, and be smart about it. I would not want to be this administration. No doubt it’s going to have a big impact on our fiscal viability and sustainability. It’s very, very worrying. It’s a mammoth task getting your head around what it’s going to cost.”

Comments

Well_mudda_take_sic 1 week, 3 days ago

Just think where our country might be today if James Smith hadn't been so willing in previous years to support the borrowing of billions of dollars for all sorts of padded government contracts and other schemes by which the corrupt political elite have gone about unjustly and greatly enriching themselves.

James Smith has always been a great believer in governing by borrowing and the more borrowing the better. You will never hear him say something drastic must be done about our ever growing illegal Haitian alien problems. Instead, he's been a proponent of just borrowing more to support our social welfare programs that benefit the illegal Haitian aliens.

Why does this old political hack James Smith think he's God's gift to the Bahamian people on all things economic when in fact he's been nothing but Satan's curse to the financial well-being of our small nation in so many countless ways?!

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geostorm 1 week, 3 days ago

Wow, just when I thought we were turning the corner financially. What a blow!

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Well_mudda_take_sic 1 week, 3 days ago

And you don't know half of the real story my friend ...... even before Dorian hit! DPM Turnquest has been a master at massaging the numbers in our national accounts and budgets since May 2017. He's been a magician par excellence at turning red ink into black ink.

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Porcupine 1 week, 3 days ago

These last few years alone have shown that these guys just don't get it. Dorian, according to the science, is just the beginning. The hurricanes are getting stronger, storm surges will get worse, sea levels are rising. As the acceleration of these effects of global warming become more evident, the brain drain will increase, along with the moneyed interests that have the money to move. Those who stay will be forced to take up more of the burden of running this country, and bailing it out. What is required, and it has been said before, is a complete revolution in the way we think, the way we do business, the way we build. The Bahamas budget is a fairy tale. There will be no further long term upswings. The forces of nature will see to that. Pray all you want.

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Well_mudda_take_sic 1 week, 3 days ago

They're plenty good at praying and quoting scripture, and playing the grief stricken card.....but when it comes to governing in a competent and altruistic way....well, let's just say they may never get a handle on that.

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ThisIsOurs 1 week, 2 days ago

They should have been focusing more on growth. tightening the purse only protects the money in the purse. now that gone

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AlbionSword 1 week, 1 day ago

The IMF should come in and reform this banana republic, would lead to living standards soaring as their involvement in Jamaica has done

Yes a loss of sovereignty - but not for the people of the Bahamas who remain the slaves of the white knights and the monopolies they operate. Food prices at 3 or 4 times Miami retail prices that cripple every Bahamian family and which based on shipping and duty costs should be at most 1.5 times Miami retail prices. But despite crippling every Bahamian family food costs are a taboo subject that not a single Bahamas MP dare mention. Clearly those that operate the stores and who are skimming $200m to $400m PER YEAR from poor families have plenty of means to 'persuade' MPs to keep their mouths shut and let the situation continue

These people will see the island in rubble before they allow outsiders like the IMF to come in and shut down their racket

And if the IMF did come in and open the way for the likes of Walmart to come here, despite them being forced to hire Bahamian workers, and despite their far lower prices transforming the lives of ordinary Bahamians, the moronic cries of 'foreign companies coming to our island' would be screamed by the brainwashed masses, well conditioned by the political class to protect their vested interests

The most positive prognosis is that the American government, seeing the mess that this situation may become, for the Bahamas and its neighbors, and the opening it would present to China and other foreign and malign interests, tells the Bahamas they take the IMF or else - or else they shut this country down as they can in 15 minutes by closing our air space and shipping access to the US

It is high time the Bahamas stopped being a banana republic and realised the potential it has given its natural beauty and location just off the coast of Florida. It should be a Singapore....not slowly becoming a northern Haiti

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Well_mudda_take_sic 1 week, 1 day ago

Your assertion that the people of the Bahamas remain the slaves of the white knights and the monopolies they operate indicates that your mind is stuck in the past. Today there are many more black knights who have amassed incredible fortunes; fortunes that the relatively small class of remaining white knights can only dream of ever having.

As for your specific reference to the apparent monopolistic pricing in the wholesale and retail food sectors, many black Bahamian businessmen with a diverse portfolio of other successful business interests have been put off trying to penetrate that sector by the harder work involved, the perishability of many food products and the much lower profit margins.

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Well_mudda_take_sic 1 week ago

Forgot to mention the very high pilferage losses associated with food sales.

By the way, the black knights have their greatest success in businesses like selling insurance (license to steal), selling fuel at price gouging prices, real estate development and low cost home construction and financing, corrupt law practices, intermediary or fronting roles in high dollar value heavily padded government contracts, etc.

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