‘Be bold’: Infrastructure spend must hit 5% GDP

• IDB: Only way to break low growth post-COVID

• And hit 3-4% sustained expansion every year

• Urges up to $700m annual capital project outlay


Tribune Business Editor


The government has been urged to “be bold” with reforms to kickstart post-COVID economic recovery that include more than doubling projected annual infrastructure spending to between $600m-$700m.

The Inter-American Development Bank (IDB), in a report obtained by Tribune Business, revealed that yearly infrastructure spending equivalent to four to five percent of Bahamian gross domestic product (GDP) is critical if The Bahamas is to break out of the low growth cycle that has afflicted it since the 2008-2009 recession.

The multilateral lender added that achieving such a level of infrastructure investment would “sustain” an annual three to four percent expansion in Bahamian economic output, which the likes of the International Monetary Fund (IMF) said was critical to sustaining existing employment levels and absorbing the 5,000 per year school leavers into the workforce pre-pandemic.

Acknowledging that it was impossible for the government to be “fiscally responsible” and finance the closing of The Bahamas’ estimated $2bn infrastructure gap itself, the IDB paper said the only way to achieve these objectives is to pool and mobilise private capital via mechanisms such as the proposed National Infrastructure Fund and sovereign wealth fund.

Setting out the rationale for initiatives that were recently highlighted by the prime minister, the report said: “To sustain an annual GDP growth rate equivalent to three percent to four percent, it is estimated that The Bahamas needs to invest four percent to five percent of GDP annually in infrastructure.

“These levels of investment are outside the possibilities of a fiscal responsible macroeconomic policy with budget resources. Consequently, The Bahamas needs to make a greater effort to tap into the mobilisation of private capital resources from both domestic and global sources.”

The recent mid-year budget figures show the government’s own capital expenditure is deeply inadequate when it comes to achieving the infrastructure threshold advocated by the IDB. And even the elevated spending on so-called COVID stimulus projects for the 2020-2021 and 2021-2011 fiscal years is far short of the mark.

Of the revised $429.5m capital spending budget for this fiscal year, just over $151m has been earmarked for Ministry of Works-related infrastructure projects. The former figure, pegged at 3.8 percent of GDP (in constant prices), is some way short of the $570.95m that would be required under the IDB’s suggested 5 percent benchmark.

And, while some $416.2m in capital expenditure is currently projected for the upcoming 2021-2022 fiscal year, this only amounts to 3.4 percent of forecast economic output - a sum that is even further away from the $611.25m spend required by the IDB’s top range.

Capital expenditure for the two subsequent fiscal years is projected to decline to 2 percent of GDP for both, standing at $264.6m and $280.4m, respectively, which are less than half the $611.5m and $700.95m sums needed under the IDB targets.

“The Bahamas has large infrastructure needs, which if not met, can hinder the development of the service sector, in particular tourism, its main economic activity,” the IDB report said. “However, due to the exogenous shocks, there is limited fiscal space for large investments in the infrastructure sector to continue to grow the tourism activity.

“The Bahamas has an opportunity to use the next few years to improve its competitive edge in the tourism market vis-à-vis regional competitors, and build the required sustainable infrastructure to develop tourism sector. Another economic sector that would benefit from advances in infrastructure is aquaculture and fisheries as The Bahamas can partner with global producers and operators in the food security segment.”

Urging the Government to throw-off the cautious, conservative approach that has shackled economic and social reform efforts for decades, the IDB report urged it to seize the momentum for change created by the twin crises of Hurricane Dorian and COVID-19.

“This situation has created the opportunity for the country to be bold in seeking innovative solutions which will be largely predicated on the ability of its policymakers and private sector leaders to work together on transformational initiatives,” it added.

“The Bahamas is facing important and complex economic times due to the successive impacts of Hurricane Dorian in 2019, and the COVID-19 pandemic in 2020. The economic and social impacts from these exogenous shocks have been unprecedented.

“Real GDP has contracted 14.8 percent in 2020, a modest rebound is expected for 2021, and will take years to converge back to its pre-pandemic level. Public debt is expected to jump to more than 80 percent of GDP by 2021 and to remain above its pre-pandemic level over the medium-term.”


Marlon Johnson

Marlon Johnson, the Economic Recovery Committee’s co-chair, yesterday said that while he was unable to speak to the specific benchmark figures cited by the IDB it was clear that The Bahamas needs “substantial investment in infrastructure” to lay the platform for a sustainable economic rebound.

“What is clear and evident is the fact that given the deficit we have in infrastructure now, which was estimated a few years ago at $2bn, to get to the point of sustainable economic growth we’ll need substantial investment in infrastructure because that is always a catalyst for sustaining economic growth,” he told Tribune Business.

“The research is clear that sustained public infrastructure investment drives sustained economic growth. This is all a part of mobilising private capital, as the Prime Minister has indicated, to meet the pace and scale of public infrastructure requirements.”

Mr Johnson added that the proposed National Infrastructure Fund will “mobilise capital in a much more structured way towards pre-defined projects”, with the initiative designed to “look holistically at the value” of such developments on a nationwide as opposed to individual basis.

Matt Aubry, another Committee member and the Organisation for Responsible Governance’s (ORG) executive director, backed the need to bring GDP growth up to annual 3-4 percent average. “It’s in that ball park,” he said of the IDB’s target economic expansion.

“That’s consistent with the things we’ve seen and some of the things we’ve talked about to bring us to a more stable state and have growth that really ticks over.”

The Bahamas was already struggling prior to COVID-19 and Hurricane Dorian to develop, upgrade and repair critical infrastructure assets that must be replicated on all inhabited islands, including roads, bridges, docks, airports, ports, schools, health clinics and such like.

The devastating impact on the public finances from this double blow means the Government has little choice but to seek to attract private financing and capital to fund these projects via public-private partnerships, as it is doing with the $140m Family Island airport enhancements and $170m solar energy financing obtained from the IDB.

The National Infrastructure Fund will be the vehicle for pooling and directing capital from both public and private sector into these investments, with the latest IDB document released as part of a bidding process to select the consultants who will devise and advise on its set-up. Its formal creation, though, is some months away as the winning consultant has nine months in which to deliver its report.

One infrastructure specialist, speaking on condition of anonymity, told this newspaper that The Bahamas can “get a lot more done” using public-private partnership (PPP) models but pointed out that projects would need to generate returns - via the use of user fees, as employed at Lynden Pindling International Airport (LPIA) - to attract investors.

Suggesting that The Bahamas’ $2bn infrastructure deficit has remained the same for a decade, they added of the fund: “It’s good to see they are doing it. The world has changed so drastically with Dorian for us, and the pandemic.” However, they advised that The Bahamas needed an infrastructure development strategy to accompany the capital raising.


Dawes 3 years, 1 month ago

Please note Government this does not mean having your flunkys increase the value of their contract to hit this target, and also don't go building $100 million in sidewalks. Build items which are needed and would help the population, but don't overbuild for example a $40 million softball stadium which will never be even half full


The_Oracle 3 years, 1 month ago

The private sector needs to be bold, not the Public sector. Whatever they spend puts us deeper in the hole, with no value for money at their $500/sq ft construction costs. The private sector needs to treat Government as the necessary evil/unwanted encumbrance it is. Ride roughshod over their useless carcasses. Stop looking to the Government or political leadership of the day, show them the way. Do something bold.


tribanon 3 years, 1 month ago

Forget showing Minnis the way. He needs to be shown the door!


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