The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must target an “ideal” debt-to-GDP ratio of less than 50 percent to put its fiscal house in order, an ex-Chamber of Commerce chief executive argued yesterday.

Edison Sumner, principal of Sumner Strategic Partners, told Bahamas Institute of Chartered Accountants (BICA) members that the country’s debt-to-GDP ratio will be “upside down” if the Government incurs just a few hundred million dollars more in liabilities.

Speaking during the Accountants Week seminar series, he implied that the Government’s debt will soon exceed the economy’s output and size given that the debt-to-GDP ratio currently stands at 99.5 percent.

The Central Bank previously revealed it had already reached this level, standing at 100.4 percent at end-June 2021, and Mr Sumner yesterday unveiled data from the regulator showing that debt repayments are expected to near-triple to $1.519bn in 2022.

He also produced figures showing The Bahamas’ foreign currency debt had quadrupled in just nine years between 2012 and 2020, with the deterioration accelerating towards the end due to Hurricane Dorian and COVID’s devastating impact on the public finances.

Foreign currency debt jumped from $1.043bn in 2021 to $4.031bn in 2020, with the latter number only likely to have further increased. “That number has pretty much quadrupled from just over $1bn to just over $4bn over a nine-year period,” Mr Sumner added.

As for The Bahamas’ debt-to-GDP ratio, this had increased over the same period from 46.7 percent in 2012 to 99.5 percent in 2020. “The national debt-to-GDP ratio has gone from 47 percent in 2012 to nearly 100 percent in 2020,” the former Chamber chief executive said. “That is not a small number, and the Government has to implement a lot of serious strategies to tackle that level of debt.

“Those numbers are very telling, and the way we respond to that is going to be very critical for future growth outlook and success of the country...... I think that the current levels [of debt] are not sustainable because if we increase our debt by a few hundred million dollars we will be upside down on the debt-to-GDP ratio.”

That will mean The Bahamas’ national debt is bigger than the size of its economy - a point that may have already been reached. Mr Sumner acknowledged talk that The Bahamas was now perched precariously on the edge of a “fiscal cliff” due to the debt and deficit blow-out produced by COVID-19 and Dorian, which had further worsened an already-troubling situation.

“One of the things we have to look at is this idea of improvement in our debt-to-GDP ratio,” he added. “For The Bahamas it should be less than 50 percent. We saw that ratio in 2012, at 47 percent. That was a very manageable level, and if we work to get back to that we will be doing well.”

A 50 percent debt-to-GDP ratio is one of the targets mandated by the Fiscal Responsibility Act. However, The Bahamas is presently as far away as it is possible to be from that benchmark, with the former Minnis administration projecting that it will not be hit before the next decade in 2030-2031. Many observers, though, are likely to feel it will take much longer than that.

Mr Sumner yesterday drew on Central Bank data that showed debt repayments and servicing costs will hit around $600m this calendar year before peaking at $1.519bn in 2022 - a near year-over-year tripling. A further $1.117bn was due in 2024, while debt amortisation was projected to also peak at $1.093bn in 2022.

The former Chamber president argued that the Government “ought to cease issuing debt” in the local capital markets at interest rates three to four percentage points higher than Bahamian Prime, asserting that this was akin “ to shooting ourselves in the foot” because of the higher debt servicing costs that are imposed.

However, given the increased risk and costs associated with Bahamian government debt due to the weak fiscal position and repeated sovereign credit downgrades, it is difficult to see how demand for its paper would be stimulated with such low compensation on offer.

Still, Mr Sumner backed the Davis administration’s decision to set a 25 percent revenue-to-GDP target, and called on it to divest and sell-off state-owned enterprises (SOEs) such as the utility companies, Bank of The Bahamas and aviation entities such as Bahamasair and Nassau Flight Services.

However, Deepak Bhatnagar, a key adviser to former prime minister Perry Christie, argued that “there’s really not much to divest at this time” - a reference to the troubled state of many SOEs and the fact they would likely realise only rock bottom prices in any privatisation.

Pointing to the Government’s unfunded multi-billion dollar pension liabilities, he added that “nothing has happened there” for 20 years but it was “where a big problem lies”. Mr Bhatnagar said: “Unless the people of The Bahamas are committed to some austerity measures, it will be very difficult to bring the finances in order. Pensions are a very big bill and non-contributory so far.”

Mr Sumner had earlier suggested imposing “a luxury tax” on the cruise industry on the basis that it “benefits a lot more than we do” from its activities in The Bahamas, with relatively few passengers disembarking the ship in Nassau and Freeport.

Mr Bhatnagar, though, voiced scepticism that this would be achieved, saying: “The country is at the mercy of the cruise ships. We try to raise fees, but every time we do that they threaten to leave.” Mr Sumner, though, argued that efforts to extract more from the cruise industry should still be made.