By NEIL HARTNELL
Tribune Business Editor
The Bahamas is in “almost uncharted territory” over its unplanned $508m post-Dorian borrowing, a Fiscal Responsibility Council member said yesterday, while warning: “Rome wasn’t built in a day.”
Gowon Bowe, who represents the Bahamas Institute of Chartered Accountants (BICA) on the oversight body, told Tribune Business he wanted to understand “how we are going to spend” to ensure that hurricane restoration financing achieves its greatest economic impact.
Pointing out that post-Dorian rebuilding will likely be spread over several years, he reiterated that there was no need for the government to rush to borrow - and draw down upon - huge sums of money until they were needed.
Calling for spending patterns to be “aligned” with when they will have the greatest economic impact and return in the disaster-hit areas of Abaco and Grand Bahama, Mr Bowe urged the Government to keep its regular expenditure “separate” from funding directed to infrastructure rebuilding and other recovery efforts.
He called on the Minnis administration to ensure the timing and direction of its post-Dorian spending has the “greatest economic impact possible”, and to focus on restoring commerce on the two islands so that “revenue-generating activities” rapidly replace deficit-fuelling expenditure.
Mr Bowe spoke after K P Turnquest, deputy prime minister, detailed the various sources that the Government will draw upon to finance its enlarged $677.5m deficit for the 2019-2020 fiscal year in the House of Assembly yesterday.
With the Government’s borrowing needs having increased more than seven-fold beyond the $72.4m approved last May, Mr Turnquest said the bulk of the financing will come from a $200m “club loan” put together by a consortium of Bahamas-based commercial lenders.
A further $177.9m will be “sourced by way of other instruments”, which Tribune Business was told is a reference largely to bonds or Bahamas Government Registered Stock (BGRS). Mr Turnquest made no mention of tapping the international capital markets, although some observers believe the Government will have to move in this direction to boost the external reserves as they are drawn down post-Dorian.
The deputy prime minister revealed that the balance of the $507.9m in unanticipated post-Dorian borrowing will come via a $50m Caribbean Development Bank (CDB) loan plus $80m that will be taken from the Inter-American Development Bank’s (IDB) $100m contingent credit line.
With Dorian having blown out the originally-projected $137m deficit almost five-fold, Mr Turnquest said $20m taken from the Central Bank’s dormant accounts fund and the $12.8m payout from the Caribbean Catastrophe Risk Insurance Facility (CCRIF) would largely cover the remainder of the $540.7m in additional “red ink” that the Government is forecast to incur.
The Category Five storm’s impact on the country’s short and medium-term finances, and 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.
Based on the figures tabled in Parliament yesterday, the Minnis administration is on course to add $2.105bn to the Government’s direct debt during its five-year term in office. That is just shy of the record $2.2bn added by its predecessor Christie administration, although both will argue that they were blown off-course by disastrous hurricanes.
Mr Turnquest, describing the scale of Dorian’s financial blow as “unprecedented” in Bahamian history, pledged that the Ministry of Finance would “maintain a very close tracking of expenditures and revenue in the coming months to determine the extent to which we could realise savings from the revised fiscal positions we are presenting today”.
He added that while the Government had been forced to adjust its fiscal consolidation targets and increase borrowing, its reaction to Dorian - and tabling of the estimated Budgetary revisions - shows it “does not operate with its head buried in the sand”.
“Notwithstanding the new deficit and debt positions being projected as a result of Dorian and its economic fall-out, the Ministry of Finance will remain vigilant and will work hard to come in at a number below the $677.5m deficit currently being projected,” Mr Turnquest said.
“In other words, while the Government has been - and will continue - to fully fund the recovery efforts, this unfortunate event will not be used as a pretext to go on unnecessary spending binges. This Government will remain committed to the principle of sound fiscal principles. Simply put, we will not use the hurricane as an excuse to go ‘buck wild’ and waste the people’s money.”
He added that there had been a “particularly good performance in revenue collections” during the six months to end-December 2019, crediting this to the Government’s enforcement initiatives such as the re-established Revenue Enhancement Unit (REU) and Customs new electronic goods clearance platform, Click2Clear.
Mr Bowe, though, urged the Government to manage its post-Dorian spending in such a way that it maximised the impact of every dollar spent for both taxpayers and residents/businesses in the disaster-hit areas.
“I want to understand how we are going to spend,” he told Tribune Business. “When I say that, I’ll go back to the saying: ‘Rome was not built in a day. We need to be methodical in not spending money before it has the greatest economic benefit.
“When you borrow you expect to have the greatest economic impact possible because you’ve structured the spending, and restored the economy, commerce and revenue-generating activities that make a direct contribution to the Public Treasury.
“We know there’s a tremendous amount of money that has to be spent by both the private and public sector in the restoration effort, but that will be spent over a few years. We should not be confusing expenditure we should always be doing with expenditure for the hurricane. The only way to keep those two separate is by being methodical and working our way through.”
With The Bahamas almost five months removed from Dorian’s passage, Mr Bowe added: “In reality we don’t anticipate a tremendous amount of activity that requires all the borrowing to be done by the end of this fiscal year.”
With an 18 to 24-month timeline more realistic for drawing down on the post-Dorian financing, he said the restoration approach could not afford to ignore the social impact and this needed to be properly co-ordinated with the economic and fiscal aspects.
“I’m looking for our expenditure patterns to be aligned with having the greatest impacts” in Grand Bahama and Abaco, Mr Bowe continued. “We have to balance between facilitating redevelopment by private sector citizens while government revenue replaces expenditure as quickly as we can by getting commerce restored.
“Put it this way: The level of expenditure anticipated in terms of the deficit is in almost uncharted territory. Some of that is going to be a buffer, but we want to make sure we utilise the buffer only when absolutely necessary. I’ll be keeping a close eye on it.”