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‘Walk and chew gum’: Subsidies, debt cost $938m

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Gowon Bowe

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas “must walk and chew gum” on its fiscal and economic revival, a leading banker has warned, with $938.5m - one third of government spending - taken up by debt and subsidy costs.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, compared the public finances to “a turnaround situation” with a private company, adding that the government needed to both invest to stimulate future growth while reducing its debt levels and associated interest costs at the same time.

He spoke out after a deeper dive into the budget revealed that the $512.5m the government is due to pay in interest costs on its existing debt in the upcoming 2021-2022 fiscal year, together with $426m in taxpayer subsidies to state-owned enterprises (SOEs), will account for one-third - or $1 out of every $3 - of the $2.826bn spent on recurrent expenditure.

Adding in the $742m forecast spending on civil service wages, salaries and allowances, and some $1.68bn or 59.5 percent of the government’s 2021-2022 budget will be accounted for by just three line items - wages, debt servicing costs and subsidies to struggling SOEs.

Assessing the task facing The Bahamas, Mr Bowe told Tribune Business: “It’s about saying how do we make this the most dynamic Budget that helps us to get back to financial stability but also allows us to grow.

“It’s like a turnaround situation with a company. You have to walk and chew gum at the same time. You have on one hand to reduce the debt and manage current expenditure, but on the other hand you have to invest in the turnaround and the company’s future.

“The country is in a commercial turnaround situation itself. We have to look at cutting expenses and maximising opportunities to retool, while demonstrating to creditors and investors that we are not going broke and we are looking to invest with prudence.”

The Bahamas effectively faces a fine balancing act to address and meet these competing objectives following the blowout sparked by COVID-19, which together have helped drive a $3.1bn plus increase in the national debt in just three years via a series of deficits currently forecast to peak this fiscal year at $1.327bn.

Meanwhile, Marlon Johnson, the Ministry of Finance’s acting financial secretary, yesterday told this newspaper that the Public Financial Management Act’s impending implementation on July 1 had mandated the inclusion of a new $23.25m item in his ministry’s 2021-2022 Budget.

“You’ll see that in the capital and recurrent head,” he said of the “Budget reserve appropriations”. “It’s part of the Public Financial Management Act. It’s for unanticipated expenditures that may crop up throughout the year. It’s a creature of the Public Financial Management Act, and comes into force on July 1.”

These “appropriations”, or seeming spending reserve to deal with contingencies such as hurricane-related natural disasters, are forecast to increase to $24m in 2022-2023 before increasing three-fold to $75m by the time of the 2023-2024 fiscal year.

Meanwhile, Bahamian taxpayers are increasingly being asked to pick up the liabilities owed by state-owned enterprises and agencies. The latest is the Education Loan Authority (ELA), with the 2021-2022 Budget showing that, for the first time, the Ministry of Finance’s spending allocation includes $6.117m to cover payments to investors who hold the agency’s bonds.

“My understanding is we got into an agreement to ensure we cover any potential arrears that may arise with the Education Loan Authority,” Mr Johnson added.

The last published accounts for the Education Loan Authority, audited by the Grant Thornton accounting firm, were heavily qualified as a result of 88 percent of the Authority’s $76.844m gross loan book being in default at end-June that year.

Some 84 percent, or $64.578m, had been delinquent for one year, with a 12-month incentive programme designed to encourage borrowers to settle their debts or bring them current netting only $3.035m.

As a result, the Authority sank into a $6.229m total comprehensive loss for its 2017 financial year compared to the $1.757m worth of “red ink” incurred in 2017. Three single expenses - $3.22m in bond interest; $1.861m in bad debt write-offs; and $1.375m in impairment provisions - exceeded its total income of $1.293m.

Elsewhere, the Ministry of Finance’s budget shows that the Grand Lucayan’s delayed sale to the ITM Group/Royal Caribbean consortium is forecast to cost Bahamian taxpayers a further $3m in subsidies this fiscal year in addition to the $7.106m incurred during the first nine months of the current fiscal year.

Mr Johnson also confirmed that the Government has budgeted $30m for the continuation of unemployment assistance until September 2021, after which the Department of Social Services will take over via the $20m-plus increase in its Budget allocation.

The $30m granted to the Ministry of Finance represents a more than 50 percent reduction in the $68m originally budgeted for unemployment assistance in the 2020-2021 fiscal year, and less than one-third of the $108.129m paid out during the nine months to end-March, as the Government banks on the economy’s reopening taking more Bahamians off the jobless line. 

Comments

TalRussell 3 years, 1 month ago

Even the former MP and cabinet minister Comrade Pierre V. L. Dupuch can agree that it is made that much more challenging for a broke government to physically walk and chew gum - all the whilst it's we ministry of finance's, two top gurus, Kwasi Thompson and Marlon Johnson, like the ones left in charge of fiscally gearing up to take economic's revival out for its mornings and afternoons recovery walks, yes?

tribanon 3 years, 1 month ago

Sadly Mr. Bowe is beginning to sound more and more like many of our corrupt politicians who blow nothing but hot air out of both sides of their mouth.

As for Marlon Johnson, he's never been capable of doing anything but spewing utter crapola whenever he opens his trap.

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