The Tribune

By Fay Simmons

Tribune Business Reporter

jsimmons@tribunemedia.net

The Bahamas has reached a point where the Government is prioritising interest payments on its $11.645bn national over services to its people, an investment analyst argued yesterday.

Pamela Ferguson, CFAL’s vice-president of Investments, told a conference organised by the investment house: “We have been gradually racking up debt over time. To the point where it is difficult for us to afford it.

“You have interest expense, the cost the Government pays on these debts. It’s the largest expenditure item on the list. So basically, the Government is taking priority over servicing its debt at the expense of serving the people.”

Ms Ferguson explained that the Government pays more in interest than it spends on public services such as healthcare and education, and has to prioritise this over social programmes to maintain its financial standing.

She said: “And I say that because $500-plus million in the last fiscal year was allocated to interest on debt. $500m-plus when education is about $300m-plus and healthcare $300m-plus.

“So when people look at it and say, why aren’t the schools ready? Why can’t we have more in the school system, or why can’t we improve our healthcare system? That’s the reason: Because the Government has to prioritise paying this debt so it doesn’t default in order to keep the country in a good position, as opposed to doing the things that it needs to do to help the public. So debt is a major problem.”

She added that prior to 2007, The Bahamas’ debt-to-GDP ratio was around 36 percent, but as of June 2023 it is now 85 percent, far exceeding the recommended 40 percent ratio.

Ms Ferguson said: “The benchmark for a country like The Bahamas, your debt to GDP, was 40 percent. And they said, because we’re a country that really doesn’t have much in terms of export, you have to be 40 percent to be conservative and, prior to 2007, that was the level of the debt 36-plus percent. So we were very conservative.

“And the foreign component of that debt was very small, I think it was about $100m plus.. very, very small. But we look at where we are today, our debt-to-GDP is about 80 to 90 percent. It’s very high.”

Ms Ferguson explained that borrowing is not the problem, but excessive spending without adequately growing and diversifying the economy has contributed to the national debt spiralling out of control.

She said: “Borrowing in and of itself is not bad. It’s not the issue, because countries borrow. I think the problem is when you borrow excessively and too fast, you get yourself to the point in this debt trap where it’s difficult to pay off your loan.

“The problem I have is that politicians continue to just have a narrow vision, looking at how to service their deficit, because they’re spending without thought. There’s no controls to spending, so they’re trying to increase revenue without any means to grow this economy. If you look back over the years, we are only growing between one or less percent.”

Ms Ferguson explained that governments have placed an emphasis on increasing tax revenues to service the country’s debt, but more emphasis should be placed on growing the economy so that residents have more disposable income and taxes will fell like less of a burden.

She said: “So if you are increasing taxes without growth, it’s going to become a burden on the people. And even when you do make that increase, and it goes up, it’s going to plateau.

“What needs to happen is more emphasis needs to be placed on growing the economy. I mean, tangibly, transparently, setting up bodies, private and public, and even bringing in some experts outside to help us to grow to this economy.

“And then if you’re growing the economy, that means people on the job, they’re getting jobs, wages are going up. And so if you increase taxes, it will be a real effect. People will feel it as much as increasing taxes, and people are depressed and salaries are not increasing.”