The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A governance reformer yesterday argued that the Budget presentation’s “big miss” was its failure to detail how The Bahamas will tackle its $10.5bn national debt and annual interest costs set to hit a record $589m.

Hubert Edwards, the Organisation for Responsible Governance’s (ORG) economic development committee head, told Tribune Business that the failure to go into detail on The Bahamas’ debt management strategy means the Budget announcement “will not move the needle significantly” in improving the country’s creditworthiness.

“The biggest miss in the Budget presentation by the Prime Minister might be in not having a fuller discussion around debt and the debt management strategy,” he argued. “The sole mention in the Prime Minister’s presentation was to ‘have appointed a private sector debt management committee, assisted by an independent financial advisor, who will devise clear objectives and a strategy to manage the high levels of debt accumulated in the past three years’.

“This might not be well received by the credit market,” he added. “The statement suggests that there is work to be done. Juxtaposed against the importance and state of the debt stock, a more tangible position would be preferred. Projected deficits for fiscal year 2021-2022 of $756.6m, and 2022-2023 of $564.3m easily makes this case.

“Laying out a persuasive narrative around debt management, an issue where seemingly the IMF and the administration are yet to be on the same page, would have been valuable. There is still an opportunity to do so in the [Budget] debate and this should be exploited to maximum effect. We should not, however, underestimate the influence of first pronouncements.

“This exclusion might represent the most significant area of risk to government’s overall plans as improvements in our credit circumstances are urgently needed to start creating fiscal space and greater flexibility. This should also be seen through a creditworthiness lens. If the question is raised [as to] how this Budget has improved the creditworthiness of the country, an honest answer would be that the projected trajectory is positive but overall the needle will not move significantly. The inability to do that at this stage demands greater focus on lenders and the credit market.”

Mr Edwards’ comments came as the interest costs on The Bahamas’ present $10.5bn national debt, which is now projected to peak at $11.734bn in the 2023-2024 fiscal year, are set to hit an all-time high of $588.988m in the upcoming 2022-2023 fiscal year. This represents a 14.9 percent increase on the $512.468m in debt servicing costs projected for the current fiscal year.

The projected $589m interest payout over the 12 months to end-June 2022 also represents 19.7 percent - almost $1 out of every $5 in recurrent spending over that period - and highlights the extent to which the national debt is sucking funding away from key public services.

Noting the Government’s efforts to cushion vulnerable Bahamians from soaring inflationary pressures, Mr Edwards said: “Overall, the Budget was excellent in dealing with social support and seeking to protect various segments of the population... The tension with this is that given the decision to not hike taxes to levels it could have, these measures placed pressure on the limited fiscal space.

“Again, this is indicative of a very delicate balancing act to be performed as we seek to navigate the tensions created by the high inflationary environment; a recovering economy with revenue performances buoyed by inflation and therefore temporary to the extent that high inflation lasts; the contentious issue of tax increases and their adverse impact on political capital; and the pressure of having high debt with associated high yields and high rollover risk.”

Prime Minister Philip Davis QC, in outlining the Government’s 2021-2022 fiscal performance, said the economy’s post-COVID reflating and end to many restrictions had resulted in total revenues growing by $617.6m or 50.2 percent to $1.847bn during the first nine months when compared to the pandemic-ravaged 2020-2021 period.

“This largely reflected improvements in tax revenue of $526.4m or 50.9 percent, and non-tax revenue increases of $90.9m or 46.5 percent,” Mr Davis said, adding that by immediately ending the COVID-related curfew and easing restrictions on businesses after taking office, the Government’s surplus cash balance had improved by nearly $35m come October 2021.

“Notwithstanding the reduction in the nominal rate of VAT from 12 percent to 10 percent in January 2022, VAT receipts increased by $366.3m or 78 percent to $836.1m over the nine-month period. Excise taxes were estimated at $46.2m . Gaming taxes improved by $21m to total $37.5m.

“Taxes on international trade and transactions broadened by $183.5m to $346.6m, and 83.1 percent of budget. The improved trade tax performance is largely explained by increases in Customs and other import duty collections of $46.7m to $180.9m, and improvements in departure tax collections of $42.8m to $48.7m.”

However, interest payments on the Government’s growing debt grew by $69.7m to $333.8m during the nine months to end-March 2022. “Government subsidies, which include transfers to government-owned and/or controlled enterprises that provide commercial goods and services to the public, also increased by $21.3m to $351.3m,” Mr Davis added.

“Subsidies to public non-financial corporations were higher by $25.3m at $335.9m, owing to the unwinding of certain COVID-19 support programmes.. To finance operations, government net debt increased over the nine months by $677.4m, resulting in a total direct charge, or direct claims on government at end-March 2022, of just over $10.5bn or 87.5 percent of GDP.

“This represents a significant decline from the position at the end of June 2021, when the Government’s debt was 101 percent of GDP. I’ll say that again: At the end of June 2021, debt was at 101 percent of GDP and now we are at 87.5 percent of GDP.”