The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A senior Caribbean financial services executive yesterday voiced concern that The Bahamas and other tourism-dependent states will suffer from “fiscal policy hesitancy” in addressing soaring post-COVID debt.

Sean Newman, Sagicor Group Jamaica’s executive vice-president and chief investment officer, told a Blooomberg-organised webinar on the Caribbean’s post-pandemic recovery that “the desire to pursue rapid fiscal consolidation” and place debt levels back on a sustainable path is likely to be “challenging” in both The Bahamas and Barbados.

“Both countries’ starting point for debt-to-GDP is very high,” he warned, pointing out that The Bahamas’ ratio is above 90 percent, as confirmed by the Central Bank earlier this week. “We’ve heard about vaccine hesitancy, but I’m concerned about fiscal policy hesitancy.

“I think the desire to pursue rapid fiscal consolidation is going to be very challenging given that both are tourism dependent. My concerns are: Are the fiscal policies there, and will they manage to implement policies to put debt-to-GDP on a sustainable level?”

The government has indicated it is now seeking to hit the 50 percent debt-to-GDP ratio mandated by the Fiscal Responsibility Act by 2030-2031, while bringing down the debt and annual fiscal deficits steadily over that period. However, much can happen to throw such plans off-course over a decade, including natural disasters and hurricane strikes.

Mr Newman, meanwhile, conceded that The Bahamas could benefit from “pent-up demand” by US tourists, which was reinforced by other panellists. Charles Seville, senior director, and co-head of Americas sovereign ratings for Fitch, said: “In places like The Bahamas or even Jamaica we’re starting to see visitors return in quite large numbers.”

Although there were questions over whether this will be sustained, and how quickly the likes of convention and group business will return, he added: “I think short haul destinations are at something of an advantage at this point. Countries in the Caribbean have proven relatively easy to get in and out of.

“I think when US travellers venture abroad they’ll be looking at the Caribbean first. Talking to some of the investors in tourism businesses, they are betting on the expansion of the sector. They are going to invest in increased capacity and think the sector is coming back.”  As for the region’s debt woes, Mr Seville said: “It’s not where you’re coming from; it’s where you’re going that matters.”

John Rolle, the Central Bank of The Bahamas governor, told the webinar that this nation will have to manage loan delinquencies among its credit unions “a little more delicately” because a lot of their members are concentrated in a tourism sector that is among the hardest hit industries in the COVID-19 pandemic.

While the banking industry’s strong capitalisation means it is better prepared to handle the COVID fall-out, Mr Rolle said The Bahamas’ recent sovereign creditworthiness downgrades meant the Government last year found itself borrowing at high interest costs of close to 9 percent even though global interest rates are low.

He added that The Bahamas’ fixed exchange rate regime prevented the Central Bank from engaging in expansionary or economic stimulus policies, and that its main focus during the pandemic has been “providing the required tolerance for regulated institutions so that they take more liberties in providing targeted accommodations to borrowers which have need of capital support”.

Mr Rolle said The Bahamas needed to focus on tax reform for its own ends and purposes, particularly when it come to funding public services and redressing fiscal imbalances, rather than become obsessed with the G-7’s agreement on a 15 percent minimum global tax rate.

He added that authorised Bahamian financial institutions are “literally on the cusp of launching a very aggressive marketing campaign to entice persons into the mobile wallet space” this summer as part of efforts to educate citizens on the roll-out of the Sand Dollar, the Central Bank-backed digital currency.