The Tribune

• Calls for PHA user fees, higher rates for big customers

• Would eliminate $116.5m in ‘unproductive’ expenditure

• NHI’s $46m taxpayer subsidy covering just 1/3 of costs

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government can slash “unproductive spending” by $116.5m and, in so doing, boost key public services if Bahamians with means pay more for water and access to public healthcare.

The International Monetary Fund (IMF), in its just-released full Article IV report on The Bahamas, estimated that annual taxpayer subsidies to the Public Hospitals Authority (PHA) and Water & Sewerage Corporation can be cut by a sum equal to 0.8 percent of economic output by implementing true “cost recovery” measures.

In the PHA’s case, this would involve the imposition of fees for persons “with greatest capacity to pay” for use of the tertiary care services offered by the Princess Margaret and Rand Memorial hospitals. As for the Water & Sewerage Corporation, the Fund recommended raising rates - which have not increased since the 20th century - for “heavy residential and commercial users”.

These savings, the IMF suggested, could then be repurposed to finance education, social welfare and primary healthcare spending. It noted that the Government’s spending on education, as a percentage of gross domestic product (GDP), is well below the Caribbean and Latin American average while the public healthcare system has been producing “worsening” care and treatment outcomes for the past decade.

“Greater cost recovery by public corporations would reduce the net subsidy they receive from the Budget,” the IMF argued. “Collecting payment from patients and enforcing fees for health services would reduce transfers to the Public Hospital Authority (PHA) by around 0.7 percent of GDP.

“A more graduated water rate based on usage would encourage conservation and reduce transfers to the Water and Sewerage Corporation by 0.1 percent of GDP. There is also scope to improve the operations, lower costs and optimise the capital structure at the energy company (Bahamas Power & Light) to support the achievement of The Bahamas’ energy policy goals.”

The combined savings estimated by the IMF from the PHA and Water & Sewerage Corporation measures is 0.8 percent of GDP - a sum equivalent to $116.53m based on the GDP estimates contained in the 2023-2024 Budget. Almost $102m would be generated from the imposition, and collection, of PHA user fees while the remaining $14.47m produced by a rise in water rates.

“Current expenditure in The Bahamas is on par with many of its Caribbean peers, but there is scope to reduce unproductive spending and support fiscal consolidation efforts,” the Fund added. “Recurrent subventions to public sector corporations account for 15 percent of the authorities’ 2023-2024 Budget, with 80 percent of transfers concentrated in five institutions.

“Staff recommends reforms that improve the efficiency of state-owned enterprises (SOE) operations and save 0.8 percent of GDP in annual transfers over the medium-term. Together with a comprehensive tax reform, cuts in transfers to SOEs would make room for increased social spending and targeted support to vulnerable households, while putting debt firmly on a downward trajectory.”

The Government is not obligated to follow or implement the IMF’s advice or recommendations, and is highly unlikely to enforce hospital user fees or increased water rates given the likely political back- lash it would suffer and the backdrop provided by the post-COVID cost of living crisis that has not completely eased.

Still, the IMF persisted: “In the Bahamas, spend- ing as a share of GDP is below many of its high income peers, but there is still space to reduce transfers to loss-making SOEs. Recurrent subventions account for a non-trivial share of the government’s budget, 3.2 percent of GDP in 2023-2024, of which four- fifths represents transfers to just five corporations – the PHA, Water and Sewerage Corporation, University of the Bahamas, the National Health Insurance Authority and Bahamasair.”

Total recurrent subsidies to SOEs are pegged at $455.229m for the present fiscal year, with Budget projections from last May keeping this figure relatively flat through the 2025-2026 fiscal year. Implementing the IMF suggestions at the PHA and Water & Sewer- age Corporation would shift the financial burden from taxpayers to users/patients and customers respectively.

“Current subventions to the PHA account for approximately half of annual current subventions to SOEs, due largely to little to no cost recovery and a system of exemptions and non-payment for most services,” the IMF added of an entity due to receive a $222.156m taxpayer subsidy this fiscal year.

“Moreover, hospital benefits accrue primarily to those with higher incomes. The collection of fees for most services offered by the PHA, means testing to require those with greatest capacity to pay, linking future price increases to the rise in operating costs, and greater efforts to reduce the write-off of unpaid bills could yield annual savings of up to 0.7 percent of GDP over the medium-term.”

As for Water & Sewerage, the IMF added: “Water rates are insufficient to cover the cost of water distribution across The Bahamas. Moreover, rates have not increased in over two decades. Increasing water rates for heavy residential and commercial users and recovering the economic cost over the long-run could improve revenue collection by Water & Sewerage and reduce transfers by 0.1 percent of GDP.”

The IMF was not done there, asserting that the $46.2m taxpayer subsidy allocated to the NHI scheme for the current and next two fiscal years will cover just one-third of its actual costs. “The 2023-2024 Budget allocates $46m per year for the National Health Insurance Authority (NHIA), but this represents just one-third of the required annual fund- ing,” the report added.

“Staff supports the authorities’ plans to require employees and employers to directly contribute to the NHI Authority, but will emphasise that these contributions should not place a disproportionately heavier burden on the poor.

“The strong recovery in tourism presents an opportunity to improve the financial prospects of public corporations directly involved in the sector. Refinancing expensive external debt owed by Bahamasair and expanding service to more lucrative routes could improve profit- ability and help reduce the $28m annual subvention.”

Urging that any savings be switched to under-funded public services and spending needs, the IMF said: “Reprioritising public spending can improve social outcomes and support more inclusive and resilient growth. In The Bahamas, social outcomes lag many of its Caribbean peers.

“Pre-pandemic, life expectancy in The Bahamas was lower than in many of its regional peers. Violent crime continues to be one of the leading causes of death, with homicide rates among the highest in the Carib- bean, especially among males. Moreover, access to education at the secondary level remains low.

“Measures to sustain the expansion of pre-primary education and to improve student retention may improve educational out- comes, while expanding programmes that support youth at risk could reduce youth unemployment and strengthen crime prevention,” the Fund continued.

“Reforming the national pension system will also require additional contributions from the Government to sustain an important safety net for the elderly.

Staff also recommends additional spending to support climate adaptation and mitigation efforts, which require additional investment in resilient infrastructure and renewable energy.

“Staff’s proposed expenditure reform could improve debt sustainability and sup- port the attainment of the authorities’ 50 percent of GDP debt target. Combined with a comprehensive tax policy reform which includes the introduction of personal and corporate income taxes, and the removal of some tax expenditures, staff estimates that recommended expenditure reform could help to improve the primary balance by 2.5 percent of GDP over the medium-term.”