The Tribune

• Dr Johnathan Rodgers, the well-known eye doctor, details a multi-tier COVID-19 revival strategy to give The Bahamas the foreign currency financing it needs without taking on too much debt.

The COVID-19 pandemic has caused a global economic meltdown that will continue to smoulder until it is contained or medicines/vaccines are found to treat and prevent its spread.

This germ-induced crisis, like the sub-prime mortgage crisis in 2008, will cause a global liquidity crunch when it comes to accessing capital. However, unlike the 2008 situation, COVID-19's geographic footprint has spread more rapidly. It has also caused an illiquidity of labour crisis because of the containment measures that have been implemented. This dual (il)liquidity problem has brought the global economy to a standstill, and potentially could bankrupt citizens, businesses, corporations, banks and governments simultaneously.

Governments across the globe must take bold steps to use whatever means possible to inject sufficient capital into their economies so that they maintain a basic level of activity until the private sector has a chance to recover. This means that there must be a global sharing of available resources, in terms of information, medical supplies and financial aid, in order to increase the chances of a global economic recovery. The proposed economic recovery plan for The Bahamas below incorporates all of these important considerations.

Economic Recovery Plan

It has been estimated that Hurricane Dorian wiped out 20 percent of The Bahamas' economic output (GDP). However, prior to Hurricane Dorian, the Bahamian economy was already in a state of economic stagnation with slow GDP growth, high total (public and private) debt levels, and high levels of unemployment. This state of stagnation was, for the most part, structural and not cyclical. The COVID-19 pandemic has added insult to injury, as it has completely destroyed The Bahamas' tourism economy, which accounts for 70 percent of GDP. The entire Bahamian economy has come to a virtual standstill, and now government must find a source of funds that can be injected into it in order to maintain a basic level of economic activity. What is needed is an economic plan that will not only inject capital into the economy, but also fund some much-needed infrastructure development and create jobs. if this "triple play approach" is taken, then I believe the Bahamian economy can avoid entering a recession and be better positioned for future recovery.

Capital Injection

The capital injection plan involves reducing the expenses of households and businesses, as well as directly injecting money into the economy to maintain a basic level of economic activity. To reduce household expenses, we should introduce:

• A six-month moratorium on all private sector banking credit facilities, including the suspension of loan repayments for three to six months.

• A six-month moratorium all utility payments.

• A six-month moratorium on business license fees.

• Active monitoring for price gouging.

In addition, the government should take steps to lower the cost of essential items such as food, medication and fuel.

Food Relief

In order to reduce the cost of food, there are two things that the government can do.

• Reduce restrictions on the importation of produce and food from Latin America and the Caribbean.

• Negotiate with the cruise ships to access the purchase of food from their commissaires located in Florida. These commissaires buy in bulk, and consequently can provide unlimited food for all cruise passengers at a rate of $8.50 per guest per day.

Medication Relief

The cost of medications could be dramatically lowered if the government were to:

• Negotiate directly with the major international pharmaceutical companies to purchase pharmaceuticals from them at source. This would lower the overall cost of medicines for all patients who are either on the national drug plan or purchase their medications from private pharmacies.

Fuel Relief

In order to reduce the price of fuel, the government should do the following:

• Negotiate directly with the oil and natural gas producers to purchase product at the lowest price possible, but allow domestic wholesalers to maintain their customary margins.

• Second, the government should enter into futures and forward contracts that would lock in the current low price of oil and natural gas.

Infrastructure Development

The government must implement an infrastructure development programme that will target the generation and distribution of electricity; the construction and refurbishment of the public education system's buildings; the digitisation of all government services; and the construction and refurbishment of specific Family Island airports. These projects will provide employment for many Bahamians for at least an 18-month period. The estimated cost of this infrastructure work is estimated to be $1bn.

Estimated loss of National Income

The capital injection that must be pumped into the economy is based on an estimate of the loss of national income from the tourism industry, plus the number of persons in the workforce who will be laid off for an estimated 12-month period. The following economic metrics have been used in formulating these estimates:

Annual GDP - $12 bn per year

National Income (90 percent of GDP) - $10.8bn

Tourism Revenue (70 percent of national income) - $7.5 bn

Non-tourism revenue (30 percent of national income) - $2.3 bn

Annual government revenue - $2.2bn

Workforce - 220,000

Average income - $19,200 per year

Assumed loss of National Income

1. Fifty percent loss of tourism national income - $3.75bn

2. Fifty percent loss of non-tourism national income - $1.65bn

3. Fifty percent unemployment (110,000) revenue loss - $2.1bn

4. Fifty percent loss of government revenue - $1.1bn

NB: Assume that there will be some tourism activity in six months' time.

Total loss of national income (1+2) = $5.4bn

Total loss of workforce income = $2.1bn

Total loss of government income = $1.1bn

Grand total = $8.6bn

Funding requirements (x 12 months)

Based on the above assumptions that there will be:

Fifty percent reduction in national income ($3.75bn)

Fifty percent reduction in employee income ($2.1bn)

Fifty percent reduction in government's revenue ($1.1bn)

Some $1bn needed for infrastructure work

Central bank reserves at $1.25bn ($2bn -$750m)

The government will have to source $4.5bn to inject into the economy over the next 12 months.

Sources of Funding

Public sector (Bahamian dollars)

Royal Bank of Canada line of credit - $200m

Retail domestic banks consolidated loan - $190m

Central Bank (annual subvention) - $300m

International Momnetary Fund (IMF) special drawing rights - $250m

Total Bahamian dollars - $940m

Public sector US dollars

Central Bank reserves US$2bn

Total is US$2bn

Sources of Shortfall Funding

Given the existing high levels of public and private debt in The Bahamas, the current high cost of domestic and foreign currency debt financing, the required Central Bank reserve level ($750m) needed to maintain the parity of the Bahamian dollar to the US dollar, and the fact that 90 percent of all consumption is imported and requires US dollars, the government must take some unconventional and creative steps, in terms of fiscal and monetary policy, in order to procure the necessary funding for the recovery plan. It is imperative that the government find a source of inexpensive US dollars.

In my opinion, the cheapest and most readily available source of such US dollar funding would be through means of a currency swap between the US Federal Reserve and the Central Bank of the Bahamas. Over the past two weeks, central banks in numerous countries have entered into similar arrangements with the Federal Reserve. Such a currency swap would involve the Federal Reserve giving $4bn US dollars to the Central Bank of the Bahamas, and the Central Bank of the Bahamas giving B$4bn to the Federal Reserve. This, plus the US$2bn in reserves that are currently sitting in the Central Bank,would be sufficient to fund the entire recovery plan over the course of one year while maintaining the required peg reserves at $750m.

The Bahamian dollars needed for the currency swap could either be printed in the form of fiat currency, minted in the form of Bahamian Sand Dollars, or a zero coupon Bahamian sovereign bond could be issued and used for the swap. Of the three options, the Sand Dollar would be the simplest and least expensive. Furthermore, the US dollars received in the swap would be used for the infrastructure projects, which would ultimately result in an increase in GDP in future years and a corresponding reduction in the debt-to-GDP ratio.

In the aftermath of the crisis, the $4bn in Bahamian dollars that the Federal Reserve would have received as part of the swap arrangement would be used to invest in Bahamian assets such as Bahamasair, BPL and Water and Sewerage. The sale of these assets could be structured in such a way that all Bahamians would have a chance to have an equity position in them. At the end of the day, everyone would win as all of these privatised entities would be more efficiently managed. There would be a reduction in the cost of utilities, and government would no longer have to waste millions of dollars annually in subsidies, while Bahamian equity shareholders would receive dividends on their investments.

In summary, I believe that this plan, if properly executed, would result in a gradual recovery of the Bahamian economy from this crisis.