The Tribune

By Fay Simmons

Tribune Business Reporter

jsimmons@tribunemedia.net

A TOP financial expert has said the government should aim to pay off its debt and operate at a surplus - for the first time since Independence.

Gowon Bowe, CEO of Fidelity Bank Bahamas, speaking at a Rotary West meeting yesterday, said the pandemic has revealed several shortcomings in the Bahamian economy and called for more meaningful fiscal planning to ensure the economy can withstand global threats.

He explained that although the country’s largest industry has rebounded in the last year, a large shock such as a recession in the US could leave the country vulnerable.

He said: “COVID taught us why these are the challenges we have in terms of accountability, execution and integrity and reporting. COVID taught us that we have had a severe failure to plan through, I'm going to say boastful years of independence. The Bahamas has not had a single year of fiscal surplus since independence and COVID highlighted that, because we didn't have any reserves. Our macroeconomic indicators all took a downward turn as they did in the rest of the world. We have a concentration in tourism, and what happened during COVID. It went from seven million to 700,000.

“Last year, yes, we rebounded and exceeded eight million in terms of tourists. But we should not forget what happens when we have threats to tourism. And the United States has various views around recession, our largest market, and what could happen if we have a recession.”

He added that although the debt-to-GDP ratio has fallen during the last year it is due to an increase in GDP and the actual debt has not contracted and warned that the economy has not grown to a the point that we are "out of the woods".

He said: “Government had some very realistic impacts coming out of COVID, so we saw contraction in GDP going from 12 billion down to 10 billion. We've rebounded yes, but we've not gone at a growth trajectory that allows us to feel that we're out of the woods.

“Government revenues went in at around 20 percent of GDP and that went from what was buoyant at near 2.5 billion pre COVID to under 2 billion during COVID.

“Our debt to GDP went pre COVID 70 percent up to near 100 percent. It is now coming back down into more normal levels under 80 percent. But the numerator, which is the debt has not contracted at all, the improvement in the ratio has solely been as a result of a rebound in GDP. And so it looks buoyant, but what happens in GDP contracts again.”

Mr Bowe said that government should aim to repay the fiscal debt so that the country can operate at a fiscal surplus instead of giving "false dreams" that the debt is much improved.

He said: “When we talk about integrity, we should not be trying to sell what is a false dream, we should not be saying that our debt situation is much improved, we should be acknowledging the truth of the matter, that our economy is doing better and so therefore our level of debt is better manageable. But we have to be realistic that we have to pay the piper at some point in time and start to repay the debt and that means getting us to a point of fiscal surplus.”

He also noted the strength of the country’s foreign reserves but questioned if the Central Bank would be able to cover the repayment of the fiscal debt.

He said: “The reality is we have buoyant reserves, but COVID highlighted for us the actual stability of those reserves. There are over $2 billion, but let's break it down into some of the actual information. We have now more than four and a half billion dollars in foreign currency debt. So if we have to pay back all of our debt, do we have enough US dollars to do so?”

He said that borrowing funds can be beneficial to the development of the country if the funds are spent on long term investments such as infrastructure that will generate economic activity.

He said: “I’ve heard, policymakers make an asinine statement that deficit spending is appropriate. Deficit spending and economic cycles is appropriate, deficit since inception of independence 50 years is not appropriate fiscal policy. Because it is meaning we are borrowing against the future, not simply borrowing to advance development to finance development.

“Government debt is not a bad thing if it is future benefit. If you say you are borrowing to fix road infrastructure or to actually enhance the infrastructure of what it is we're going to do as a society, go for it, because we should have taxes that can help pay for that because it will generate economic activity. If you are borrowing to pay salaries…that is like borrowing for a vacation and Christmas gifts. When the party done, the party done.”