The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

A GOVERNANCE reformer says a recently-released report on Caribbean debt levels tells a “worrying story” for The Bahamas and its regional counterparts as they battle to overcome the fall-out from countless hurricanes and COVID.

Hubert Edwards, head of the Organisation for Responsible Governance’s (ORG) economic development committee, told Tribune Business that the Inter-American Development Bank (IDB) study, ‘Dealing with debt-less risk for more growth in Latin America and the Caribbean’, has “three major highlights”.

He added: “In a decade-and-a-half the debt burden of the region has near doubled. This holds true for The Bahamas. Debt-to-GDP in 2008 was 25 percent. The debt [increase], which was necessary to face the vagaries of the recent pandemic and global financial crisis, is now poised to unleash its own version of pain. Debt servicing as a proportion of government revenue is significant and is likely to rise.

“The institutional support necessary to effectively manage and help lessen the pain and burden of the debt taken on is far from primed and ready and, consequently, there is the inevitability that some countries in the region will, in the near to mid-term, feel the debilitating pressure of debt on their economies. Successive governments have simply failed to implement reforms necessary to support and facilitate growth and reduce spending.

“Generally, what is at risk here, and this is certainly the case for The Bahamas, is not the ability to repay the debt but the risk of reduced growth potential as a result of the level of debt and the attendant pressure that the lack of growth will itself create on government finances.”

Pointing to the need for “discipline” by policymakers to rein in spending, Mr Edwards added: “The reality is that the discipline needed in the arena of spending and policy reform is emerging too slow, if at all, to have the desired impact on managing the way forward. With The Bahamas quickly reverting to its historical growth potential, pre-current debt levels, it will be hard pressed to secure improvements in the economy beyond the current robust reconsolidation.

“This, with a new experience with respect to levels of debt, puts the country at risk financially, creates serious pressure on an already-narrow fiscal space and limits the ability to implement planned policies in development-promoting sectors. Bearing in mind that the report speaks to the entire Latin American region, one has to make mental adjustments for the nuances of The Bahamas and the lesser grouping of the Caribbean.”

Mr Edwards added: “The Bahamas is better placed than most countries to deal with its circumstances. Part and parcel of that ability, though, must address the historical lethargy of spending, institutional and sectorial reforms. The fiscal balance sheet of the country continues to demonstrate weaknesses, and given the breadth of observed need, will require either a shift in spending discipline or measures to expand revenue beyond current potential.”