By NEIL HARTNELL
Tribune Business Editor
The deputy prime minister yesterday voiced optimism that the government will beat its $1.327bn fiscal target for the upcoming 2020-2021 fiscal year as he reassured that The Bahamas’ debt burden is not yet “unbearable”.
K Peter Turnquest, speaking after Moody’s stripped The Bahamas of its “investment grade” credit rating with a two-notch downgrade, expressed confidence that the Minnis administration can secure a repeat of its 2018-2019 fiscal performance when it beat that year’s deficit target.
“The good news is that we have beaten the estimates before, so there’s no reason to believe we won’t do better this time assuming the economy does turn as we anticipate it to,” he told Tribune Business. “The big unknown is when this virus will be taken under control, or a vaccine comes into play, and it’s still unknown how visitors will react to the current environment with the virus still active, but we’ll see.”
The government’s 2020-2021 budget forecast and economic projections are based on tourism’s revival starting with the end-November Thanksgiving holiday, which traditionally signals the start of the peak winter season.
Mr Turnquest said that while The Bahamas “has to be optimistic and positive” that these predictions will work out, “we obviously have to be concerned, and very watchful” over the rapid surge in COVID-19 infections in this country’s major source market, the US, which supplies 82 percent of annual visitors.
Pointing out that the government has already adjusted its COVID-19 health protocols to require incoming travellers to produce a negative PCR swab test before they will be admitted to The Bahamas, having initially sought to waive this requirement ahead of the borders’ re-opening on July 1, Mr Turnquest acknowledged that this country was ahead of the US - with its 2.2m cases - in controlling the virus.
“It is a concern,” he reiterated of the present US situation, and especially in the so-called “Sunshine State”. “Most of our market comes from Florida or transits through Florida. Either way we can anticipate some negative short-term reaction to that.
“That’s built into our Budget projections. Hopefully by the time we get to Thanksgiving we either have a vaccine or a calming of the situation because people are prepared to deal with it. No matter what we do, the reality is if our source market is not performing at the same standard we will have issues.
“Our whole objective is to make sure we coincide with the recovery in the US so that once they’re clear, we’re clear, and there’s no uncertainty but they’re still having challenges.”
Mr Turnquest revealed that the government is unlikely to tap the international capital markets for the foreign currency debt financing required to cover the projected $1.327bn deficit until fall 2020, adding that the reduction in yields on its existing debt was “a little bit of good news”.
Moody’s yesterday revealed that the yields on the government’s foreign currency bond issue due to mature in 2028 had dropped from 11.6 percent at the height of the COVID-19 pandemic in May to 8.2 percent currently, which is still higher than the six percent interest coupon that The Bahamas has traditionally paid on bonds placed with overseas investors.
“It will hopefully translate into a bit of a reduction in the anticipated financing costs,” Mr Turnquest said of the yield fall, “but it’s still going to be higher than our traditional 6 percent. It’s going to be better than we had anticipated, but still higher than our normal rates. The upside is better than we were looking at a couple of weeks ago. Our borrowing capacity remains solid and we checked on that today. We’re in solid stead.”
Increased interest costs translate into a higher debt servicing burden that must be financed by Bahamian taxpayers, and Mr Turnquest said the Government was focused on returning to its fiscal consolidation plan as rapidly as possible given that persistent deficits and borrowing will continue to squeeze its budgetary flexibility.
“As we run deficits and borrow, financing costs become a higher percentage of the Budget and, at some point, you will run out of room to efficiently manage that and service the other obligations the Government has,” he told Tribune Business.
“Even as we go out to borrow $1.3bn we are very mindful we have to restrain the expenditure and put ourselves back on the fiscal consolidation path as quickly as possible. You will see that in the Fiscal Strategy Report that is due out in November.
“The reality is the trajectory on these interest costs is going to become more significant, and at some point it will become unbearable. We’re very far from that, and the fact of the matter is we still have the ability to make adjustments on the other side. But we don’t want to get to the point where the decisions you are making are forced by fixed interest costs. That’s not productive.”
Mr Turnquest added that the Government would “really be in trouble” without the consolidation efforts undertaken during the Minnis administration’s first two years, and said it was currently focused on managing cash flow while also providing the necessary stimulus to the economy “at the right time and helping people as best as possible so they don’t fall below the poverty line”.
Pledging to extract value from every dollar spent by the Government in the 2020-2021 fiscal year, he told Tribune Business: “One of the things we’ve been stressing is the expenditure we are making, particularly when it comes to infrastructure, is that we are diligent and hawkish about that as much as possible to ensure the projects we engage in are going to be growth positive, employ people and stimulate other sectors of our economy.
“It has to be something that fills an infrastructure need. We don’t want to engage in middling works projects but take the opportunity to invest in critically needed infrastructure. We also have to encourage people to shop at home, particularly for domestic goods or manufactured products so that we keep as much foreign currency as possible during this period when tourism earnings are down.”