The Tribune

• UoB economist: Bahamas must show fiscal crisis ‘under control’

• Argues that ‘all bets are on the table’ over key economic reforms

• But top Finance official says data shows the recovery ‘has legs’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must “right this ship in the shortest possible time” to show creditors it has the post-COVID economic and fiscal crisis under control, a local economist urged yesterday.

Rupert Pinder, who lectures at the University of The Bahamas (UoB), told Tribune Business that “all bets are on the table” when it comes to addressing the near-$2bn economic contraction, and $10.356bn debt blow-out, produced by the global pandemic.

Speaking after the Government unveiled its 2020-2021 full-year and fourth quarter fiscal “snapshot”, he added that the data should leave no one - and especially the new administration that will be elected in nine days - in any doubt as to the extent of the challenge they will face to stabilise the economy and public finances.

Warning that fiscal austerity measures needed to be targeted so they do not undermine an economic rebound, Mr Pinder said it was vital that The Bahamas “have control over that process” rather than be forced to submit to the likes of an International Monetary Fund (IMF) adjustment programme.

There have been no overt signs that such an intervention is likely in the near term, and Marlon Johnson, the Ministry of Finance’s acting financial secretary, yesterday argued that the strength of the Government’s revenue rebound in the first six calendar months of 2021 showed the tourism and wider economic recovery “has legs”.

After being $68m off Budget projections for the first quarter of the 2020-2021 fiscal year, due to COVID lockdowns and other restrictions imposed in July, August and September that year, he pointed out that revenues for the full-year beat projections by more than $110m with almost two-thirds of the Public Treasury’s income generated during the final half.

Mr Pinder, though, said the latest fiscal “snapshot” should leave the political parties under no illusions as to what lies ahead should they win the Government on September 16. “In my view, all bets are off,” he told this newspaper. “I think all options need to be put forward.

“Clearly, some reforms have to be done.. because it’s one thing to report to a local domestic audience, it’s another thing to report to your creditors. I would imagine that as we seek financing we’re really going to have to demonstrate we’re prepared to right this ship in the shortest possible time.”

While laudable for the Government to focus on growing The Bahamas out of its post-COVID and Dorian slump, Mr Pinder said this nation may not have sufficient time to do that before austerity measures - new and/or increased taxes and targeted spending cuts - became inevitable.

“Bearing in mind that growth is not instantaneous, some of the measures while take a while before they grow roots,” he explained. “We also want to make sure that some of the measures put in place do not compromise growth.

“Those measures imposed externally rarely produce positive results in terms of growth. It’s better for you to have control over that process. The analogy I like to use is if an adult is about to beat you, it’s better for you to go into the bush and select your own stick rather than have someone select it for you.”

Mr Johnson, though, said the Bahamian economy’s ability to handle the extra debt and associated interest burden, plus narrow the annual fiscal deficit over coming years, will become easier as it recovers its full capacity post-COVID.

Suggesting that this process had already started, he added: “What we saw in the second half [of 2020-2021] is that revenues rebounded fairly healthily, and you would recall that in the context of the first quarter that we were $68m behind budget after the July and August shutdown in 2020.

“We were behind budget even after the second quarter, so in the third and fourth quarters we made up that deficit and went ahead. This year, July and August have trended materially above Budget from a revenue standpoint. It suggests for the time being that revenue projections are holding and the economic rebound has legs.

“It’s not a temporary reprieve and that the momentum is ongoing, which is a positive development for all of us. We all understand that this has been the most significant event in the recent history of the country, so it accrues to the benefit of the entire country that this economic momentum is sustained, we keep the economy open and move towards some measure of full economic capacity.”

Mr Johnson said the Ministry of Finance had taken “a measured view” of when The Bahamas would achieve 100 percent of pre-COVID economic capacity, suggesting this was still some way off and could cover up to two future fiscal years yet.

He added that the Government would have to continue to be “sensitive to the realities on the ground” as it related to COVID-19 and “make expenditure decisions that way” regardless of who wins the September 16 general election, acknowledging that social and assistance may not be reduced as rapidly as the Government had previously anticipated.

Mr Pinder, meanwhile, said the latest fiscal “snapshot” had further highlighted “the extent of the challenge” that will be faced by the incoming administration. “Certainly for the new administration I think everybody should have an appreciation in terms of where we’re at,” he added.

The UoB economist also questioned whether the full extent of the Government’s financial position was captured in the report given that it continues to rely on cash-based accounting as opposed to the accrual variety, which would capture future spending commitments yet to be incurred. 

And Mr Pinder also voiced concern that 90 percent of the net change in the Government’s liabilities involved foreign currency borrowing, which he argued could impose future pressures on the external reserves and the industries that replenish them to meet repayments to lenders.

The Government’s fiscal “snapshot”, though, said almost two-thirds of its revenues were secured during the 2020-2021 second half due to the economy’s reopening and end to COVID-19 restrictions as well as the tourism rebound.

Both quarters are traditionally the strongest revenue generators, but the Government said: “Of the $1.603bn in tax receipts,16.8 percent was amassed in the first quarter; 18.7 percent in the second quarter; 29 percent in the third quarter and 35.5 percent in the fourth quarter.

“Approximately $1.033bn (64.5 percent) was collected during the second half of the fiscal year. Quarterly VAT receipts strengthened progressively during the year, with the strongest gain of $271.8m posted in the final quarter.

“Taxes on property improved by an estimated $44.4m to $143.5m, and represented 136.9 percent of budget. This outcome included an additional $27.6m in collections from the Government’s real property tax forgiveness programme to reduce outstanding arrears.” No mention was made, though, of how much tax was given up or written-off as a result of this initiative.