Deputy Prime Minister Peter Turnquest.
By NEIL HARTNELL
Tribune Business Editor
The deputy prime minister has reiterated that "it's too early" to determine if new and/or increased taxes will be needed for The Bahamas to escape the fiscal hole created by COVID-19 and Hurricane Dorian.
K Peter Turnquest, pictured, in a recent interview with Tribune Business, expressed his faith in the economy's ability to "bounce back relatively quickly" from the multi-billion dollar shocks created by two crisis that occurred just seven months apart.
He declined to respond when asked whether The Bahamas' debt burden, projected to bypass the $10bn mark in the 2021-2022 fiscal year, was reaching levels where it becomes an unsustainable burden on Bahamian taxpayers, saying: "I'm not going to even entertain that conversation because the basic assumption is that we will have a relatively quick recovery.
"We have to believe that the economy is going to come back relatively quickly. The previous experience with pandemics is a V-shaped recovery. In our circumstance, it may end up being a bit more of a 'U', but hopefully it will be a short 'U' and we will get back to the other side relatively quickly."
Many observers believe that The Bahamas will have to generate explosive economic growth if it is to avoid further austerity measures to right its fiscal course, something it has conspicuously failed to do over the past decade when the average annual gross domestic product (GDP) growth figure was below 1 percent.
"It's too early to talk about this kind of thing," Mr Turnquest replied, when asked whether new and/or increased taxes will be inevitable as a result of the projected $1.3bn fiscal deficit for the 2020-2021 budget year. "We anticipate there's going to be a strong recovery in the economy based upon pent-up demand for near shore vacations.
"We also believe the cruise industry will come back to some degree, and that will help to advance the growth to bring us back around. These industries are resilient and will bounce back relatively quickly, together with all the initiatives we have taken to shore-up small and medium-sized enterprises."
Mr Turnquest acknowledged that the government's unfunded civil service pension liabilities, estimated by some to stand at $2bn now, represent "a significant exposure" that is being assessed both within the administration and external consultants.
He added that the budget had focused on a 12-month timeframe because "there isn't a hell of a lot of data to rely upon" in projecting economic forecasts during health pandemics such as COVID-19. "Forecasting is not as certain as we've had in past experiences because of the large unknowns," Mr Turnquest said. "Nobody can really predict how consumer demand will react....."
The 2020-2021 budget projections confirmed that the scars and impact of COVD-19 will continue to impact both the economy and the government's fiscal position for many years to come.
For the government is currently forecast to run an $813.4m deficit, measuring by how much its spending exceeds its revenue, in the subsequent 2021-2022 budget year. If that comes true, it will be the second highest deficit in Bahamian history behind this year's $1.327bn, and even higher than the $773.7m worth of "red ink" that will be incurred in the present 2019-2020 period.
This "unprecedented" deficit and borrowing, combined with those two years, means The Bahamas will have added more than $2.9bn to its national debt within a three-year span. And, according to the budget projections, will take the government's direct debt beyond the $10bn mark by June 2022.
Predicted to hit hit $9.5bn, a sum equivalent to 82.6 percent of Bahamian gross domestic product (GDP) this fiscal year, the Budget forecasts project this will steadily rise to $10.32bn in 2021-2022 and $10.614bn in 2022-2023. The debt-to-GDP ratio is forecast to peak at 85.6 percent in 2021-2022 before dropping to 83.1 percent the following fiscal year as economic growth returns to a higher level than 2019-2020.
This is forecast to produce a 15.5 percent, or more than $58m, increase in The Bahamas' debt servicing (interest) costs over three years. The interest bill just to service the national debt is forecast to rise from $377.052m to $435.498m by the 2022-2023 fiscal year, further cementing its place as the largest and most costly line item in the government's annual budget.
However, the debt projections in the Budget forecast do not contain the guarantees the Government has given on behalf of the public corporations (usually around 6-7 percent of GDP) or the multi-billion dollar civil service unfunded pension liabilities. As a result, the total national debt is likely much higher.