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Budget must ‘move needle’ on creditworthiness, growth

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

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Hubert Edwards

The upcoming Budget must focus on “moving the needle” on The Bahamas’ access to affordable foreign currency financing and higher economic growth, a governance specialist urged yesterday.

Hubert Edwards, principal of Next Level Solutions, told Tribune Business that the low-cost Chinese state-owned bank loan that the Davis administration is seeking to finance its $290m New Providence hospital ambitions illustrates the challenges it is having in sourcing affordable international financing because of external concerns over this nation’s creditworthiness.

He added that this, together with the need to break-out of the historical 1-2 percent annual GDP growth that The Bahamas is now reverting back to after completing its post-COVID reflation, “must be addressed” via the 2024-2025 Budget that Prime Minister Philip Davis KC will present to the House of Assembly on Wednesday.

Mr Edwards told this newspaper that consistently higher economic growth rates in the 2.5 percent to 4 percent range will help relieve the Government’s multiple fiscal concerns and either reduce, or eliminate, the pressure for tax reform that includes new and/or increased taxes to help achieve targets such as the 25 percent revenue-to-GDP ratio by 2025-2026.

Noting that state-owned enterprises (SOEs) and the public service consume close to $1.2bn annually in combined subsidies and salaries between them, he added that both areas require urgent reform attention to help facilitate faster private sector expansion and investment that will drive job creation.

And, while “serious fixes” to The Bahamas’ energy crisis will benefit all, Mr Edwards also suggested that persons who go back to school to re-train - especially in emerging technologies - should receive tax credits or some other form of financial support as this will ultimately boost productivity and the economy.

“I think too often we try to anticipate what they [the Government] will try to do,” he said of next week’s Budget. “I think we need to spend more time, if we are going to advocate for change, saying this is where we ought to go.

“The two biggest things are, despite the improvement in revenue and reconsolidation, I think we need to recognise that our creditworthiness has not been significantly improved by this change even though it is positive. Despite the fact we’ve had some positive feedback from Moody’s, and that’s a platform to build on, it has not really moved the needle in our favour.”

Moody’s last month gave the Government’s fiscal consolidation campaign a major boost by predicting that this year’s fiscal deficit will only narrowly overshoot its target by $44m.

The credit rating agency, in its latest update on The Bahamas released on Friday, forecast that improved revenues and “spending restraint” will contain the deficit for the 2023-2024 fiscal year to a sum equivalent to just 1.2 percent of economic output of gross domestic product (GDP).

If Moody’s projection turns out to be accurate, the GFS deficit will be only slightly higher than the $131m, or 0.9 percent of GDP, that the Davis administration targeted when unveiling its Budget last May. The rating agency’s latest 1.2 percent deficit forecast, based on that Budget, is equal to $174.67m or a near-$44m overshoot if it holds and comes true.

Yet, in spite of this and the Government’s recent upbeat assessment, Mr Edwards said: “We continue to have discussions about our ability to access credit at a reasonable price. The decision to go with a Chinese bank [for the hospital] indicated there is still a concern or challenge in accessing credit at favourable rates.

“Consequently, that is only going to cause a pressure environment that is significantly influential in decision-making going forward. That’s one area the Budget needs to address.” The Government is aiming to access a concessional Chinese government loan, via the China Export-Import Bank, that will finance the new hospital at 2 percent over a 20-year period.

As for economic growth, with The Bahamas forecast by the Central Bank and the International Monetary Fund (IMF) to be “settling back into what we consider to be the historical” levels of average 1.7 percent GDP expansion between 2024 and 2026, Mr Edwards said this nation “needs to clearly demonstrate it has a higher growth potential” than that.

Calling on the country to strive for GDP growth between 3 percent to 4 percent, he added: “That growth potential really lies in our ability to implement reforms in a timely basis, execute those reforms and allow them sufficient time to germinate to create an environment in which secure growth moves into the realm of 3 percent, 3.5 percent and 4 percent.”

Such reforms, Mr Edwards said, include reducing the annual $400m-plus subsidies handed to loss-making SOEs so that they become more efficient and facilitate faster private sector growth. Too many, he added, are both losing taxpayers’ money and impeding innovation and investment.

Besides energy reform, the Next Level Solutions principal said The Bahamas has to make sure its education system and workforce are aligned with the economy’s future and growth industries. This, he added, will involve re-tooling and training workers in the skills necessary within the necessary time.

“Persons should get tax credits or allowances to let them go back to school and become more proficient in the area of technology,” Mr Edwards told Tribune Business. “That’s going to enhance the workforce, enhance productivity, over time.

“The other area we want to look at is the public sector. It suffers from being large and bureaucratic. It needs reform that makes it more efficient. It’s never going to be lightning-fast efficient, but make it more efficient, more facilitative so that it positively impacts the ease of doing business and persons can get on with advancing ideas and businesses.

“Those are some critical areas to look at because it benefits the country..... There must be a clear effort to rationalise the almost $500m in expenditure to SOEs and $700m to the public sector (salaries). Reforms should be evident in securing improvements, efficiencies, greater corporate governance and creating a more facilitative environment for economic growth.”

Mr Edwards said such reforms will ease the pressure on the Government to introduce new and/or increased taxes. “The extent to which we achieve organic growth takes the pressure off the Government to consider moving or shifting the tax regime,” he explained.

“If we can secure better growth, the regime need not be instantly changed. If we don’t get the growth we need on a sustainable basis, I think there will be a need to rethink the regime and that, in and of itself, could be disadvantageous to the economy. Growth is one of the big factors I would like to see coming from this Budget.”

Comments

Porcupine 3 weeks, 5 days ago

That was a mouthful Mr. Edwards. Where will you be 15 years?

Porcupine 3 weeks, 5 days ago

Continued growth in the medical field means cancer. We will continue down this road, just like Kenya just did. Our entire economic paradigm is like magic. Once the magician leaves the room, the magic is over. No matter how many brilliant experts we bring in, the failures remain quite evident. It is important to have people who are good at playing with words, as numbers. Don't worry. All is well here. Our politicians always have the people's best interest at heart. They are excellent money managers and well educated in economics. And, they are honest and never steal or require kickbacks. And, as long as we continue to grow, like the experts tell us we should, we'll have no problems. Rising crime, security systems, increased hospital visits, and other non-productive expenses all contribute to economic growth. So, we should be just fine.

Bonefishpete 3 weeks, 3 days ago

They get that 1 Billion in carbon credits nobody got to worry anymore.

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