The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Bahamian economy’s performance has been “remarkably unimpressive” for most of the past two decades, an ex-finance minister warning that the country is having to “run ever faster to stay in the same place”.

Sir William Allen, in his last message as chairman to Fidelity Bank (Bahamas) shareholders, called on this nation to undertake fundamental structural reforms to end the perception “of an economy too long at the brink of a breakthrough”.

Pointing out that unemployment has been in the double digit percentages “except for brief interludes”, Sir William said the Government had begun one essential reform – implementing Value-Added Tax (VAT) in a bid to both eliminate annual fiscal deficits and slash the national debt.

The other elements of his plan include energy reform, the former FNM Cabinet minister warning that without it “it is doubtful that the vibrancy of the Bahamian economy will ever be unleashed”.

Success here, Sir William explained, was key to reducing the Bahamas’ multi-billion dollar annual current account deficits via reduced oil imports. These huge deficits, he explained, were forcing this nation to seek ever-increasing amounts of foreign direct investment (FDI) to ensure the balance of payments balanced.

And the final plank in Sir William’s structural reform recommendations is to improve the Bahamas’ competitiveness by enhancing the ‘ease of doing business’ – something that has been a major cry from the private sector.

Writing in the BISX-listed bank’s 2014 annual report, Sir William said: “It is unmistakable that in most of the last two decades, the performance of the Bahamian economy has been remarkably unimpressive.

“Economic growth was anemic, unable to make any lasting impact on unemployment. Except for brief interludes, unemployment has been running at double digits and continues to do so.”

The current official unemployment rate is 15.7 per cent, and forecasts suggest the ‘double digits’ referred to by Sir William are set to persist for the foreseeable future regardless of whether the $3.5 billion Baha Mar project eventually opens or not.

The International Monetary Fund (IMF), for one, is predicting that the Bahamian unemployment rate will only come down gradually, hitting 14.8 per cent this year before declining further to 13.6 per cent in 2016.

Sir William, meanwhile, said the same weakness had been evident in the Bahamas’ external reserves, which had been “demonstrably unable to build a buffer” despite high FDI and capital inflows.

“The apparent inability of the economy to generate the dynamism necessary to have a major impact on unemployment, the abiding sense of needing to secure ever-higher levels of foreign direct investment to balance international payments, and generally the impression of an economy too long at the brink of a breakthrough, suggest there may be a need for change in some of our basic economic arrangements,” Sir William wrote.

Praising the Government’s “successful” VAT consolidation, the ex-finance minister said this paved the way for his first suggested reform – halting the $6.2 billion national debt’s growth, and “once again restoring confidence in public finances”.

This, Sir William added, was vital to attracting investors and ensuring financial system stability, as well as aiding long-term planning.

The Christie administration is also moving on another Sir William recommendation, that of energy reform. Talks are continuing with its preferred Bahamas Electricity Corporation (BEC) management partner, PowerSecure International, although several promised deadlines for the signing of a Transition Services Agreement with the Government have slipped by.

While the benefits from a deal with PowerSecure may take some time to materialize, Sir William said it could become “a sea change in our circumstances”.

“Another candidate for change as suggested by the intransigence in the economic situation is the high cost and inefficiency in our production and distribution of electricity,” Sir William said. “There can be little doubt that this represents an enormous burden on the Bahamian economy as a silent killer of profits and opportunity.

“If this burden cannot be addressed, it is doubtful that the vibrancy of the Bahamian economy will ever be unleashed again. This represents a burden on every level of society.”

Sir William said successful energy reform was directly related to his call for a major reduction in the current account deficit, given that a major contributor was the Bahamas’ near-$1 billion annual import bill.

The current account deficit jumped to almost 22 per cent of GDP, or nearly $2 billion, in 2014 as construction work on Baha Mar quickened. The IMF is predicting this will narrow to 12.5 per cent in 2015, and 8.3 per cent in 2016 – still representing sums equivalent to hundreds of millions of dollars.

“The historical hugeness of this imbalance has been a monumental drag on our resources over the years, and has prevented us building reserves surpluses despite the considerable foreign investments the country has traditionally attracted,” Sir William said. “It is what makes us run faster to remain in the same place.”

Improving the ‘ease of doing business’, he added, was also vital to “altering the perception of an economy unable to realise its obvious potential”.

Sir William said this concept was measured by the speed and efficiency of government licensing and approvals processes, their respective costs and the time and effort expended in obtaining them.

“There is the perception that there is scope for improving the ease of doing business in the Bahamas,” the ex-finance minister said.

“Reliance on growth in the United States economy and the global economy as a sufficient condition to restore vibrancy to the Bahamian economy seems a doubtful proposition now. Perhaps a bit of ‘retooling’ of our own economic situation could be helpful.”