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New Govt’s ‘pivotal sink or swim term’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas faces “a pivotal sink or swim” five years under the incoming government, a leading reform advocate yesterday warning the national debt will equal GDP if the Christie administration’s performance is repeated.

Robert Myers, a principal with the Organisation for Responsible Governance (ORG), told Tribune Business that the Bahamian economy “will tank” unless governance standards dramatically improved.

With the national debt standing at more than $7 billion at year-end 2017, and the Christie administration having added some $2 billion to this figure during its tenure, Mr Myers warned that a repeat of the past five years would take the national debt to $9 billion - a figure equivalent to 100 per cent of the Bahamas’ GDP (total economic output).

“I think it’s absolutely our pivotal moment,” he told Tribune Business of the next government’s term in office. “We are either going to do it, or we are going to sink.

“I don’t think we’ll make it another five years with the same level of accountability and transparency and management. It’ll tank our economy. We’ll see more downgrades, a greater brain drain, inflation.”

Mr Myers’ remarks outline the key challenges and realities facing the successful party in yesterday’s general election amid the euphoria of their victory.

Speaking after Tribune Business revealed that the fiscal deficit for 2015-2016 was 123 per cent higher than projected, Mr Myers said the incoming administration will be confronted with a “vicious cycle” of rising debt and anemic economic growth.

He emphasised that the new government will be unable to solely tax its way out of its financial crisis, as Bahamian businesses and consumers had nothing left to give.

Warning that an increased taxation burden would only further depress the economy, Mr Myers said fiscal responsibility had to be married with growth strategies.

“That’s going to be a challenge,” he added. “A sensible government, a responsible government has got to realise it’s not just about fiscal responsibility but also about creating economic development, improving the ease of doing business, stabilising the credit rating, improving productivity and educating the populace.

“These are the real challenges to make this thing happen. They’ve got to improve the sentiment, create employment, create incentives for opportunities and not just tax the economy, as it will continue to shrink. You cannot tax the Bahamian people more because they don’t have it to give you.

“Whether it’s a new government or returning government, how and where are they going to make this change? Continuing to manage the way they have been will inevitably be our complete demise,” Mr Myers continued.

“That course is not a steady decline. You may be going down at a certain trajectory, but at some point it becomes a straight line down. These things mount up on you - cost of debt, downgrades, brain drain - and all of a sudden that downward line turns into a vertical drop.”

Mr Myers said government revenues would shrink if the economy contracted, adding that it was vital to restore Bahamian consumer and business confidence if this nation was to achieve the growth levels needed to reduce double digit unemployment.

The Central Bank’s annual report showed that the 2015-2016 fiscal deficit resulted largely from revenues coming in $110 million below the Government’s projections, with spending overshooting by $61.1 million.

The Government’s fixed cost spending increased by $293.1 million or 17.1 per cent in 2015-2016 to $2 billion - a figure 3.5 per cent higher than Budget estimates - with reduced capital spending keeping the total outlay in check.

The Central Bank blamed the increased outlays on a 43 per cent jump in subsidies to loss-making public corporations, together with rising interest payments on the $7 billion-plus national debt and a $25 million expansion in the civil service wage bill.

“Amid the rising stock of outstanding debt, interest payments firmed by $41.6 million (17.8 per cent) to $275 million, due to growth in both the internal and external components by $37.7 million and $3.9 million, respectively,” the Central Bank said.

Describing this as “the fiscal cliff”, Mr Myers told Tribune Business: “If we get to the point where debt servicing is such a massive portion of your budget, we are already on a slippery slope where we can’t climb back.

“If you believe you can continue to tax the economy you will cause contraction, not expansion, and we hit fiscal doom..... When it collapses, it really collapses, and it will really depress growth and the economy, and will be really painful for a lot of folks for a long time.

“If you think I’m joking, look at Jamaica. The only reason people in Jamaica survive is living off the land. We’re not at that point yet, but we’re getting there. The Bahamas is fast approaching it.”

Mr Myers questioned why the Christie administration had made numerous spending commitments during its last months in office when the 2015-2016 fiscal data showed it was consistently missing its Budget forecasts.

He added that if revenues were under-performing, the Government needed to adopt “real world” business solutions and reduce its spending to compensate, and keep deficit targets on track.

“It shows there’s no management capacity and governance capacity at all,” Mr Myers told Tribune Business of the 2015-2016 fiscal year.

“Whoever gets into power has to address that. If we want to ignore this and spend ourselves into oblivion, we’re going to hurt the country long-term.

“One one hand the Central Bank is telling you that you’re overspending, and the debt-to-GDP is out of control, but if you think that’s OK as a civil servant, a government minister or manager of a public agency, I don’t know how that’s sensible.”

The Bahamas’ national debt stood at $7.042 billion at year-end 2016, with the debt-to-GDP ratio at 77.9 per cent - a level well above the so-called ‘danger threshold’ cited by the International Monetary Fund (IMF) and others.

“At end-December, the direct charge (debt) on the Government stood at $6.313 billion, a rise of $399.2 million (6.8 per cent) over the prior year,” the Central Bank said.

“Similarly, the national debt - inclusive of Government guaranteed loans - rose by $373.1 million (5.6 per cent) to $7.042 billion at year-end, amounting to an estimated 77.9 per cent of GDP, up from 75.3 per cent at end-December 2015.”

Comments

OMG 7 years, 2 months ago

The government has to be tough and decisive. Natural wastage in the civil service, dismissal of all the so called in house consultants, Taxing winter residents on rental income, total review of projects such as the mini hospital in Central Eleuthera and many others, taxing visitors boats using a hook tax inplaces such as Exuma where there are 4 or 500 boats enjoying our waters for free. In short CUT EXPENDITURE. Mind you crafty Christie pulled a smart one with the Police back pay. If re-elected in all probability that promise would have been delayed or stopped. Not elected (as we now know) he leaves the problem with a new administration already cash strapped.

ThisIsOurs 7 years, 2 months ago

Ingraham already tell them no matter who got elected, the treasury didn't have the money to pay them end of March. But he did promise that the FNM would honour the courts decision

John 7 years, 2 months ago

If The Chrisite government had dedicated the VAT tax to paying down the national debtas promised, the future will not look as bleak as it does now. One must realize that the more you go into debt with a fixed or limited revenue stream, the more difficult it is to climb out of that debt and pay it off. So The Minnis Administration may need to bite the bullet and commit to paying down the debt by at least $2 billion in the first two years of office. This may mean that a lot of programs and capital works may have to be delayed or even cancelled. The other alternative is to continue business as usual, continue borrowing and end up with an increased, national debt, reduced credit rating, inability to pay your bills, a possible devaluation of your currency and the IMF coming in and taking control of the country. This is the worst case scenario and there are 'in betweens'. For example if Minnis could grow and expand the economy and increase government's revenue, while at the same time paying down the debt, this would be a better option. If the government has to restort to increasing taxes this will be more damaging and can lead to more contraction in the economy and an eventual reduction in government revenue.

Truism 7 years, 2 months ago

What magic formula would allow for the paying down of the national debt by $2 billion in the first two years in office? Our current level of recurrent expenditure would not allow for such a venture.

MassExodus 7 years, 2 months ago

Agreed. I would just cut expenditures. We need to cut the fat, and government jobs will need to be cut. I also agree with the earlier response to adding taxes, but not to Bahamians, to winter-residents, and yachts/cruisers. Our cruising permit is $300 odd dollars for several months. The yachts that come in, come in fully provisioned and spend very little. Same with cruisers/sailors as they are in general cheap, and put little back into the economy. 3 month cruising permits should be issued and taxed according to boat length i.e 0-40' $750, 40-70' $1500, 70-120' $3000, 120+ $5000.

ThisIsOurs 7 years, 2 months ago

You know what I think, I think there is far more money in this economy than anyone realizes. Look at the credible claims of selling govt contracts for example. It's been alleged that a garbage collection contract had a going rate of 5,000-10,000 per month. That's one contract. One. That's the equivalent of a reasonable salary for between 2-4 persons depending on job requirements. One contract, one ministry. I hope the guilty Minister(s) looks in the mirror today and understands fully what they've done

My firm belief is that this country looks like a starved adult because it was a starved adult. People with authority grabbed money as soon as it entered the system not allowing the country to feel the effect of FDI or borrowing.

Better management of what we already have, and tight reign on the purse handed to Ministers, could go a long way.

Alex_Charles 7 years, 2 months ago

our budget for 2016-2017 was around $2.2bil, that contract is a drop in the bucket.

We had a projection of between $100mil -$190mil in a deficit shortfall.... we now sit at close to or over $320mil - $350mil.

Christie jacked up the spending when revenue increased.

bottom line is, slash the flipping budget, urban renewal is the first thing that needs to go.

John 7 years, 2 months ago

@ Alex_Charles while poor people are the ones most dependent on government, they are also the ones that spurn the most economic activity, so they are the ones who keep the economy going. to jump of the top of your head and say to cut off urban renewal is both reckless and irresponsible. In many of these inner-communities, Urban Renewal is the only activity, and more importantly it serves as a beacon of hope for many young people. So when you can jump in your car and drive to the beach or to the movies or hop on a plane and go abroad on vacation, this is their only activity. Being poor is not a crime and the inner-cities are not responsible for most of the national debt This country has racked up. So why punish them by cutting their programs first? Except to be spiteful and vindictive and stupid? Not unlike Donald trump is being in the great United States

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