The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas needs an "extraordinary economic shot in the arm" to meet the International Monetary Fund's (IMF) targets, an ex-finance minister said yesterday, as hitting them would be comparable to "beating Usain Bolt".

James Smith, also an ex-Central Bank governor, told Tribune Business it would be akin to defeating the former Jamaican sprint champion if The Bahamas was to hit the $473m average primary fiscal surplus that the fund says is needed over a six-year period to bring the debt-to-GDP ratio down to 50 percent by the 2030-2031 fiscal year.

"If we look at our economic history for the last ten years, without some extraordinary economic shot in the arm it's almost impossible to meet that target over that timeframe," Mr Smith added. "Our average growth rate for the last ten years has been between 0.5 percent to 0.8 percent of GDP, and that's fairly decent numbers because in that period there were two recessions, Dorian and COVID-19."

He suggested that trying to hit the IMF's projections "could even, in the best of circumstances, end up overheating the economy", and added: "It's almost like a warning that unless something substantial happens with the economy in that period, they're [the IMF] telling you they'll be down here to impose some conditions on you.

"It's kind of like saying to a 100-metre sprinter that if you beat Usain Bolt in a race over the next two years we'll be prepared to forgive your debt. That's kind of near impossible."

Mr Smith spoke out after the IMF, in a report accompanying its $252m "emergency" COVID-19 loan to The Bahamas, warned that the government must run an unheard-of $500m fiscal surplus beginning in the 2024-2025 budget year to hit a key debt reduction target by the end of this decade.

It revealed that the government will only achieve its goal of a 50 percent debt-to-GDP ratio by the 2030-2031 fiscal year if it achieves an annual budget surplus equivalent to four percent of economic output or gross domestic product (GDP).

This would mean the government has to generate an average $472.65m primary surplus, the amount by which its revenue income must exceed all fixed cost spending bar interest payments, for a six-year period over the coming decade as the extent of the combined blow dealt by COVID-19 and Hurricane Dorian is fully revealed.

"The authorities remain committed to fiscal consolidation over the medium term as specified under the Fiscal Responsibility Act," the IMF said. "The Government activated the escape clause of the Fiscal Responsibility Act after Hurricane Dorian hit the country. This allows the authorities to postpone the achievement of their fiscal consolidation targets (a fiscal deficit of 0.5 percent of GDP by fiscal year 2020-2021 and a public debt-to-GDP ratio of 50 percent by fiscal year 2024-2025) by four years.

"The COVID-19 crisis will delay reaching these targets further, but the authorities are steadfast to bring the fiscal deficit to 0.5 percent of GDP by 2026-2027 and the debt ratio to 50 percent of GDP by 2030-2031. They will resume various measures when the pandemic fades, including the reviews of state-owned enterprise (SOE) governance, investment incentives, and the pension system, enhancements to public financial management (PFM) to increase expenditure control and efficiency, and revenue administration reforms."

Mr Smith, meanwhile, suggested that achieving the IMF's fiscal consolidation targets would be "a tremendously painful blow and burden on the body politic", with the Government unlikely to follow its suggestions due to the hardship this would impose on Bahamian families and businesses.

He added that The Bahamas needed to conduct a rapid post-COVID-19 assessment to determine "how deep we're off from normal and also the amount of time for the resuscitation of the market". In this country's case, he added that this meant how long it would take for US tourists, who account for 82 percent of this nation's visitor base, to become comfortable taking a flight or cruise/boat to The Bahamas.

With Florida and the US north-east coast especially critical, given that they generate the majority of The Bahamas' stopover tourists, Mr Smith argued that the possibility of a second COVID-19 surge was not being given enough weight by policymakers as the economy started to re-open.

"It almost seems to discount a double spike, which is quite likely it seems to me," Mr Smith added. "With respect to the US, when they're comfortable getting on a plane we'll rebound with a lag. We've seen the COVID-19 impact not decreasing, but increasing in some areas.

"It's quite likely we may have a double spike not unlike what happened in 1918-1919 with Spanish flu. If that happens, we're really in trouble." Mr Smith added that major Bahamian hotels were likely to operate with less staff because social distancing protocols and other health measures will mean they serve less tourists.

And The Bahamas was also likely to find itself down the queue for receiving a COVID-19 vaccine should one ever be created. "Whatever the estimates are for the recovery, in our case with the US there's at least a one-year lag time," the former finance minister added.

"Our best thing is to tighten our belts, prepare for the worst and hope we do better than we expect. With the 2007-2008 financial crisis, which affected the world, most countries emerged from that in three to five years. We didn't up until the point of Dorian."