By NEIL HARTNELL
Tribune Business Editor
The government is “far from” an uncontrolled debt spiral, the deputy prime minister argued yesterday, while voicing concern that a PLP administration would not remain faithful to fiscal consolidation.
K Peter Turnquest told Tribune Business that Bahamian taxpayers “ought to have a bit of concern” that a Progressive Liberal Party (PLP) government would fail to steer post-Dorian fiscal deficits on to a downward trajectory should it take office at the next election.
Noting that the opposition party’s representatives have opposed the Fiscal Responsibility Act and increased reporting under the current administration, Mr Turnquest said efforts to get back on track with the targets set out in the legislation were “absolutely necessary” for The Bahamas’ future financial stability.
“I think the Bahamian people ought to have a bit of concern that the opposition has made some public, on-the-record statements with respect to their position on the Fiscal Responsibility Act and reports we’ve been doing,” Mr Turnquest said.
“Whether that gives an indication of their intent, I leave that to the Bahamian people to decide. They are on the record as having questioned and opposed the Fiscal Responsibility legislation.”
Mr Turnquest told the House of Assembly this week that Hurricane Dorian’s $3.4bn worth of devastation meant it might take almost a decade, until the 2028-2029 fiscal year, for the government’s finances to reach the 50 percent debt-to-GDP target ratio set out in the Fiscal Responsibility Act.
Suggesting that this timeline might be “conservative”, and could be achieved quicker barring any further Dorian-type disasters over the next decade, he argued that setting the public finances back on the consolidation path detailed by the Act as rapidly as possible was critical to restoring sustainability.
“From our perspective it’s absolutely necessary,” he told Tribune Business, “not only to discipline ourselves but to demonstrate our commitment to our partners that we understand the issues and have every intention to bring the situation under control and restore it to manageable levels given that we’re in an area subject to unexpected events.
“That will demonstrate we have the headroom to respond to emergency needs. It’s part of our risk mitigation strategy from a macroeconomic standpoint, and in our view it would be irresponsible for anyone to delay that as we look to the future fiscal sustainability of the country.
“I’m very confident we’ll get back on track. I’m very confident, barring any further natural disasters of the size and magnitude that we’ve just had, that the path we were on was working notwithstanding the challenges and we were comfortably within where we need to be.”
Mr Turnquest also dismissed fears that The Bahamas is nearing a position where its debt levels could spiral out of control due to the projected $1bn-plus increase in the national debt that is forecast to occur over the next three fiscal years.
“No, we’ve not reached that point. We’re far from it,” he replied. “We will do well to be prudent and go back to the principles that got us the results we enjoyed over the last two years, and we’ll do that. I don’t expect we’re going to get into that kind of range any time soon.
“It’s all about prudent ways of collecting the revenue that we need to collect on the books. It’s a continuous fight, unfortunately, for compliance. We’re doing all we can with the Revenue Enhancement Unit and they’re making progress, so we do what we can.”
Dorian’s impact on the country’s short and medium-term finances, which has placed fiscal consolidation firmly on the backburner for the time being, shows that a 2019-2020 deficit equivalent to 5.3 percent of gross domestic product (GDP) will drive the Government’s direct debt beyond the $8.205bn mark by end-June 2020.
The direct debt-to-GDP ratio will increase by more than seven percentage points compared to initial projections, rising from 57.3 percent to 64.4 percent by the time the fiscal year closes. This ratio is forecast to peak at 66.6 percent at the end of the 2020-2021 fiscal year, and will only have come down slightly to 65.9 percent some two years later.
The Government’s revised budgetary projections show more than $1.7bn being added to its direct debt over the four years from end-June 2019 to the close of the 2022-2023 fiscal year, taking it to $9.243bn.
If roughly $700m of contingent liabilities guaranteed on behalf of loss-making state-owned enterprises are thrown in, together with potentially at least $1.5bn in unfunded civil service pension liabilities, then the true scale of The Bahamas’ debt is placed nearer $11.5bn.
Tribune Business also revealed on Thursday that Bahamian taxpayers face a $50m post-Dorian hike in debt servicing costs. The forecasts published by the government in the May 2019-2020 budget projected that its debt servicing (interest) costs would be placed on a declining trend, falling from $381.351m in 2018-2019 to $371.552m this fiscal year.
That momentum was to continue with further falls to $345.338m in 2020-2021, and $327.552m in 2021-2022. However, the recovery and restoration costs associated with Dorian have totally reversed this picture based on the estimates contained in the supplementary Budget presented to the House of Assembly in late January.
While debt servicing costs are forecast to increase by a modest $5.5m on the initial 2019-2020 projection to $377m, the impact of the $540.5m deficit increase post-Dorian only starts to be properly felt in coming Budget years.
Instead of dropping to $345.338m in 2020-2021, the government’s interest bill is instead forecast to surge to $381.238m. And, for 2021-2022, instead of dropping to $327.552m it is projected to increase to $377.852m - a jump of more than $50m compared to pre-Dorian. Debt servicing costs are forecast to increase further in the 2022-2023 fiscal year to $397.8m, placing them almost equivalent to the $400m in Dorian-related expenses and losses.
Mr Turnquest yesterday pledged that the Government would ensure Bahamian taxpayers receive value for money for the extra debt and borrowing costs taken on post-Dorian. “We are very sensitive to the additional funding we are asking to borrow,” he said, “and we recognise we have an obligation to the Bahamian people to be as transparent as possible with respect to that.
“We will manage this very carefully and judiciously, and will be monitoring that expenditure, and hope to be able to report to the Bahamian people on how this money is being spent in addition to the regular reports we do.”
Mr Turnquest described criticism of the Government’s decision to borrow a net $508m to finance Dorian-related repairs and recovery as “mischief” that had its roots “more in rhetoric and politics than economics”.