The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government and Central Bank were yesterday accused of suffering “a panic attack” over the Bahamas’ ‘junk’ downgrade by the Opposition’s Senate leader, who branded the interest rate cut as “too little, too late”.

Branville McCartney told Tribune Business that the Central Bank should have cut borrowing costs deeper and earlier, arguing that the timing of the 50 basis point cut – just 48 hours after Standard & Poor’s (S&P) move – left little doubt it was designed to counter the downgrade.

The Democratic National Alliance’s (DNA) leader then slammed Prime Minister Perry Christie for “talking foolishness” in attempting to blame the ‘junk’ downgrade on the “acts of God” that were Hurricanes Joaquin and Matthew.

While both storms, especially Matthew, disrupted the Government’s fiscal planning, reducing revenues and creating unplanned borrowings and expenditure, Mr McCartney said the Bahamas’ downgrade predicament had been building for almost 50 years.

He argued that root cause was the inability of any PLP or FNM administration to produce a ‘balanced Budget’ since the arrival of Majority Rule in 1967, creating a gradual debt build-up that exploded as a result of the 2008-2009 recession.

Slamming the two major parties for “terrible economic and fiscal mismanagement”, Mr McCartney described the FNM and PLP as “two sides of the same coin that got us into this mess”.

The DNA leader said Mr Christie had been quick to criticise the former government’s fiscal policies when in Opposition, but had subsequently managed to outdo it in “spending like drunken sailors”.

Reflecting on the pre-Christmas economic developments, Mr McCartney said the interest rate cut’s timing threatened to undermine its effectiveness, given that most persons would perceive it as a riposte to S&P.

“When they heard about the downgrade, the Central Bank decided to cut interest rates, something they should have done a long time ago,” the DNA leader told Tribune Business.

“It was panic. It was two-fold. They panicked, and they had to show they were doing something to counter the downgrade.”

Mr McCartney said the Central Bank had resisted calls from the private sector and others to reduce interest rates for five-and-a-half years, yet it suddenly jumped into action “on the heels of the fourth downgrade suffered by this administration”.

The DNA leader, who is himself a businessman with interests in the pharmaceutical, real estate and education sectors, said the reduced borrowing/debt servicing costs would assist his ventures “a little, but not enough”.

“It’s a bit late for them to cut it now,” he added. “They did it as a result of panic. They needed to cut it a bit more; they’re behind the ‘8-ball’ again. They are reactive when they didn’t have to be.”

John Rolle, the Central Bank’s governor, last week denied that the 0.5 percentage point cut to the Discount Rate was a direct response to the Bahamas losing its investment grade creditworthiness.

He was backed by Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, who suggested last week that the Central Bank had been studying a cut for some time.

However, other observers were left questioning whether the Central Bank had compromised its autonomy and independence, and if it had bowed to Government pressure to produce something positive following the ‘junk’ downgrade.

Apart from describing S&P’s analysis as flawed, and blasting the downgrade as unwarranted and premature, the Prime Minister has also tried to blame it on the two Category Four hurricanes that have hit the Bahamas.

Joaquin is estimated to have caused $105 million in damages when it struck the southern Bahamas in 2015, while Matthew’s impact has been pegged at around $1 billion in terms of total economic losses.

The Government was forced into borrowing an extra $150 million to deal with Matthew-related relief, repairs and infrastructure restoration, creating considerable doubt over whether it will hit its $100 million GFS deficit target for 2016-2017.

Mr McCartney, though, slammed the Government’s attempt to blame the two hurricanes for the latest downgrade and its fiscal woes.

“Oh, please,” he told Tribune Business. “The Prime Minister is talking foolishness again.

“Remember, this is the same Prime Minister who, back in the Abaco by-election after Ingraham had quit, said: ‘You can pray to God all you want, but you have to come through me’.

“How does he reconcile this statement about it being ‘an act of God’ with his statement about having to come through him? How do you reconcile that, Mr Prime Minister?” Mr McCartney added.

“These statements are going to be his Achilles heel in this election. No one is more powerful than God, yet when things go bad you blame him? Don’t blame God on this one.”

The DNA leader said the Government had, in Joaquin’s aftermath, pledged to implement measures to ensure that its Budget and fiscal plans would no longer be thrown off course by natural disasters.

Yet Mr McCartney argued that it was just as unprepared for Matthew as it had been for Joaquin.

He added that the roots of the Bahamas’ present fiscal crisis went much deeper, and had been building for decades under successive PLP and FNM administrations.

“This is a combination of not only the PLP’s bad fiscal policy, but 40 years of terrible management of our economy by the FNM and PLP,” Mr McCartney told Tribune Business.

“We Bahamians should be mad as hell, because both the PLP and FNM got us into this mess. Christie, when in Opposition, was talking about how the FNM were spending like drunken sailors, and now they’re doing the same thing.

“They’re the two sides of the same coin that got us into this mess. He’s [Mr Christie] gone beyond the FNM on deficit spending. Both of these parties are incapable of handling our economy. They’ve proven it time and time again.”

Tribune Business’s own review of Budget data, based on the Government’s own statistics, shows that the Christie administration likely added more to the Bahamas’ $6.778 billion national debt in four years than its predecessor did in five.

While the Ingraham administration, based on the GFS deficits it incurred, added just over $1.5 billion to the national debt between 2007 and 2012, its successor almost outpaced this rate of ‘red ink’ accumulation in three.

In the period closing with the 2014-2015 fiscal year, the Christie administration generated $1.408 billion in cumulative GFS deficits.

If IMF projections of a near-$300 million deficit for 2015-2016 hold, and assuming the forecast deficit of $100 million for 2016-2017 is hit (a tall order post-Matthew), the current government will have added $1.808 billion to the national debt during its tenure.