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Spending 'explosion' with SOE losses squeeze govt

Tourism and Aviation Minister Dionisio D’Aguilar.

Tourism and Aviation Minister Dionisio D’Aguilar.

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Mounting losses at troubled state-owned enterprises (SOEs) are squeezing the government amid “exploding” welfare demands, a Cabinet minister adding: “All arrows are pointing the wrong way.”

Dionisio D’Aguilar, minister of tourism and aviation, told Tribune Business that the COVID-19 lockdown had exacerbated the “cash haemorrhaging” at long-standing loss makers that are grounded without any revenue income - such as Bahamasair.

Revealing that the government is facing an “increasingly negative cash flow” position at many SOEs, Mr D’Aguilar said it was seeking to maintain employment levels despite the growing drain they pose to an already over-burdened Public Treasury that is struggling to cope with the demands imposed by the pandemic.

And, while the government has yet to develop a solution for its SOE headache, he argued it was “a dream” to believe it simply borrow $2bn to address all the country’s woes given the debt this would load on future Bahamian generations.

“The government has not decided at this time to alter the cost structure of these entities,” Mr D’Aguilar told this newspaper, “but in so doing your expenses are remaining virtually the same with no revenues coming in to offset those expenses.

“Your losses are mounting, and you cash flow is growing more negative by the minute. That’s forcing these entities to lean on what they deem their lender of last resort, which is the Government of The Bahamas.

“We have a drastically reduced amount of tax revenues coming in, but the losses from these SOEs are mounting and it’s presenting a cash flow problem for the Ministry of Finance to have to address. Nobody wants to be in this situation. It’s an unfortunate situation, but in the business world you would characterise something like this as a situation where you are haemorrhaging cash.”

The government collectively allocated almost $414m in subsidies to SOEs in the 2019-2020 budget. Although more than 50 percent, or $223.445m, was given to the Public Hospitals Authority (PHA), the likes of Bahamasair ($23.293m); Water & Sewerage ($25m); Broadcasting Corporation of The Bahamas ($7.578m) continue to bleed Bahamian taxpayers and the Public Treasury.

Mr D’Aguilar said tourism-dependent SOEs such as Bahamasair and Nassau Flight Services, which itself was due a $1.8m subsidy, have shut down but still have their pre-COVID-19 cost structures given that no temporary lay-offs or other expense-cutting measures have occurred.

“This is an issue that has to be addressed at some stage if the revenue situation doesn’t improve,” the minister reiterated. “What the solution is, I don’t know, but the Government would obviously like to maintain headcount as best as possible.

“Let me be painfully clear: The Government has not come up with a solution to address the increasingly negative cash flow situation. It’s concern. It doesn’t take a brain surgeon to figure that out. Bahamasair’s planes are parked. You have no revenue coming in but your cost structure remains unchanged; the fixed costs you incur when you fly.

“This is a problem. The business model has changed. You’ve got no revenue, and the signs are that tourism is going to take a while - first of all, to come back, and then ramp up. Some are saying it will take two to three years to ramp up to pre-COVID-19 levels,” Mr D’Aguilar continued.

“You have a cost structure and business base that already operates at a loss pre-COVID-19, and now you will have reduced business after the pandemic. That inevitably leads to increased losses just at a time when demand on the public purse for social assistance and the like has exploded.

“You have all these arrows heading in the wrong direction; revenues going down and expenses going up. It’s indicative of the entire business of government.”

Mr D’Aguilar said the tourism shutdown, and subsequent economic lockdown post-COVID-19, had created “a massive hole” in the Government’s available resources as the lack of activity meant all tax revenue streams had slowed to a trickle.

Noting that the Government had initially projected a $137m deficit for 2019-2020, the minister said it was simply impossible to go out and borrow $2bn - as suggested by the Opposition’s deputy leader, Chester Cooper - to both cover its own financial ‘red ink’ and stimulate the economy.

“It’s not like you can adapt your cost structure to a new reality with far less revenue whatever that number may be, $500m less or $1bn less,” Mr D’Aguilar said. “Just to maintain the status quo and keep people employed may require you to find $1bn to close the revenue gap.

“There’s no way you can borrow $2bn. That’s a dream. You may have to borrow half of that amount just to keep the status quo. The private sector is a lot more nimbler, so they just lay everybody off. If the Government adopts the same approach, it would be catastrophic.

“This is a very difficult situation. You cannot print money. You have to try as best as possible to live within your means, and if you have to borrow something they will only lend you money if you can demonstrate how to pay it back,” the minister continued.

“The great unknown is when this will end. It may take a number of years for people to come back. The COVID-19 scenario is a double whammy: Nobody is travelling and the domestic economy is on lockdown. Economies thrive on activity.”

Comments

Sickened 4 years ago

The health impact seems to be manageable now - and that's great news. Unfortunately, the economic impact hasn't even started really - and it's already bad for far too many. Many, many, many businesses and family's are taking and will continue to take one hell of a financial beating, with many of them not able to recover without declaring bankruptcy. This is no-one's fault as even with generous savings in your personal accounts too many of us simply won't be able to make ends meet. And on top of that, the last 50 years of corruption has crippled the government's ability to assist anyone. They won't even be able to keep their owns lights on!

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tetelestai 4 years ago

Yes the "nimble" private sector lays everyone off...guess where those employees turn to for help? The government! So, really, you are giving credit to the private sector for releasing people and letting the government deal with them. I give up...again.

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TalRussell 4 years ago

Profitability is the lifeblood required for a business to continue to write workers' paycheques. Remove paycheques and.workers, self layoff themselves. Nod once for yeah, twice for no?

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concerned799 4 years ago

Entities that are paid on the public dime must accept we have far less coming in now so head counts and pay must be cut. It is what it is. Times are not great, but people in the private sector are being laid off, the idea a government job is gold plated must be an idea cast firmly aside. We can not just keep borrowing more money.

Really government spend and deficits should not have been allowed to creep up once tourism numbers fell off in 2008 we are paying a dreadful price for this now.

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DWW 4 years ago

We are so screwed. Savings? really who has a savings account these days? taxes take the first chuck, the bank the next, inurance the third part and the scraps get used to buy food and gas. Whenever this ivory tower doctor gobmint takes of the rose coloured glasses we might be able to start addressing the massive whale in the room. The ONLY option is to stop lock down and curfew and get the economy going again. If the government is unable to feed and cloth the entire country and pay all the bills for everyone then we are all screwed. I find it utterly unconscionable that the Bahamas Government deems is perfectly acceptable to take away a mans/womans right and ability to earn an income but not arrange to take care of that person's well being. Minnis says no one can go to work for a day, a month, a year (oh it will be 12 months pretty soon, otherwise the first month was a waste of time money and resources) Minnis says no one can make any money except doctors and policemen. Minnis says go suck your teet if you hungry. Minnis doesn't care a hoot about all the starving children or the ones locked up 24 hours day with an abuser. shameful

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DWW 4 years ago

All the while the blackmarket grows and grows. taxes get smaller and smaller. Did we not learn anything from the US prohibition at all?

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