The Tribune

A Young Man's View

By Adrian Gibson

The Bahamas is on the fast track to an economic downgrade.

The governing Progressive Liberal Party (PLP) has grossly mismanaged our economy. The economy has nearly ground to a halt, the unemployment level is rocketing and Bahamians are crying for help.

The PLP’s year-over-year projections of growth have proven to be fairy tales, fanciful yammering to fool a public desperate for good news.

Last Friday’s announcement of Moody’s decision to place The Bahamas on a two-month downgrade review was not surprising.

I have no doubt that Moody’s and Standard & Poor’s (S&P), following a review of the economic condition, will downgrade the Bahamas. No doubt, there will be weeping and gnashing of teeth and nightmares of political lives flashing before folks’ eyes when both credit ratings agencies visit The Bahamas this month to conduct their annual economic and fiscal assessments.

I would pay to be a fly on the wall during those meetings.

A further downgrade by Moody’s of two notches or more could cost The Bahamas its investment grade rating, pushing this nation into so-called ‘junk’ status. The loss of ‘investment grade’ status would be highly damaging for The Bahamas and our economy. Our creditworthiness in international capital markets would be shot. Our interest payments on borrowed money would rocket and, in order to service increased costs of borrowing, monies would have to be siphoned from essential services such as healthcare, education and so on. All so that we could operate as a nation for another day.

Moody’s did not say anything that we ought not to have known. Ever since 1973, we have spent more than we earned. Anyone who does that will, at some point, have to pay the piper.

Moody’s statement appears to have been sparked by Prime Minister Perry Christie’s affirmation of official Department of Statistics data showing that the Bahamian economy contracted by 1.7 per cent in 2015, following a 0.5 per cent shrink in 2014. This contrasted sharply with previous positive growth estimates by both the government itself and the International Monetary Fund (IMF), prompting Moody’s to determine that The Bahamas is “unlikely” to hit its 1.5 per cent Gross Domestic Product (GDP) growth potential in the short-term.

What’s more, in the eyes of any discerning observer, it is clear that the Christie administration’s consolidation plan has yet to arrest the growth in the $6.6 billion national debt and related ratios.

In this year’s budget, our expenditure on interest payments alone is comparable to the entire budget of the Ministry of Education. When you include the principal deductions, we spend just shy of $500m servicing loans per year. Put simply, almost 20 per cent of our country’s budget goes towards debt reduction, but yet the debt is steadily increasing.

At present, the government’s debt-to-GDP is an astounding 76.3 per cent. Moreover, the increasing debt has seen the government direct debt-to-GDP balloon by five per cent over the last two years.

Given the realities on the ground, I doubt that Mr Christie and his merry men could convince both rating agencies that the country’s economic growth and fiscal policies are up to the task, and will deliver the results promised to both them and the Bahamian people.

As it stands, the government’s policy credibility is on the verge of being totally discredited. The ramifications of another sovereign downgrade would be near catastrophic.

As if Moody’s announcement wasn’t already a punch in the our economic eye, the Central Bank’s Monthly Economic and Financial Developments for May, 2016, released on Monday, was damning and yet another tell-tale sign that our economy is on go-slow.

Our number industry is tourism. We can hardly brag of any growth or innovative approaches to revamping our touristic product.

According to the Central Bank: “Tourism indicators available from the Bahamas Hotel and Tourism Association (BHTA) - for a sample of major hotels in New Providence - suggest that the sector was relatively weak over the review period. Total room revenues declined by an estimated 7.0% during the first four months of 2016, relative to the corresponding period a year earlier, reflecting a 1.4 percentage point reduction in the average occupancy rate to 75.6%, along with a 5.8% ($16.83) decrease in the average daily room rate (ADR) to $270.91.”

Wow! So, the “signs of the softness in tourism output” and declining revenues in tourism is, in part, due to the fact that we have not seen a thrust to revamp and rebrand tourism beyond re-doing the same old commercials. We see no major attention being paid to selling each Family Island as a tourist package unto itself or, for that matter, developing the tourism product in New Providence. Many of my visiting friends complain about having nothing to do on arrival to Nassau as there is little to no nightlife and the town practically dies after 5pm, including Bay Street.

Our tourism product leaves much to be desired.

The Central Bank stated: “In the fiscal sector, the overall deficit deteriorated, as an increase in short-term financing to the public sector led to a rise in spending, outpacing the gains in revenue; while monetary sector developments were dominated by a reduction in broad liquidity, owing in part to a falloff in institutions’ holdings of Government securities.”

And so, this explains the mess we are in. We spend more than we take in. Our government appears to have no aspiration to balance the budget.

Whilst we may experience “robust gains for Value Added Tax (VAT) elevated tax receipts”, it is clear that the VAT monies is being foolishly spent on salaries in a bloated public service. Why in the world is money collected from VAT included in the Consolidated Fund, to be accessible and played with by wide-eyed politicians?

According to the Central Bank, government expenditure has increased. This is a classic example of tax and spend! Our country is surviving off credit!

Why has spending increased by $54.0m (23.5 per cent) to $283.5m?

Why in the world are we - a country of under 400,000 citizens - paying to sustain a public service where wages and salaries payments have increased by $18.6m (3.5 per cent) to $553.0m?

What the government ought to be doing is controlling or decreasing spending with taxation, not increasing. We are in a very challenged fiscal position and if/when we are downgraded, the borrowing and accessing money will cost us significantly more. It is time for austerity measures.

Mr Christie can lead by example by taking a cut in salary, travelling less and not basking in the pomp and pageantry that his Office could afford, but where expenditure for such functions could be used elsewhere. Further, the PM could reduce his Cabinet by five to seven members; reduce the number of permanent secretaries; retire and offload 60 to 75 per cent of the government’s so-called consultants; sell loss-making entities such as Water and Sewerage; offer all of the government’s shares in BTC, BEC and Cable Bahamas in a public offering that allows most Bahamians to fairly access the stock and simultaneously raise funding; sell Bahamasair or offer shares to the public in the airline; implement a no-fly rule on Cabinet ministers and large contingents, only allowing those ministers and personnel who must travel to travel; ensure that government vehicles are parked in the evenings and on the weekends; and re-train personnel and computerise government departments that accept money in order to curb theft and wastage.

There is almost $1 billion of uncollected public fees at the Princess Margaret Hospital. This happened over years. Dr Duane Sands recently told me that the government annually spends roughly $200m and collects less than $7m. Imagine that!

What about the $100m that is owed to the Bahamas Mortgage Corporation over the years and the defaulted loans at that entity? Or the millions owed to the scholarship loan authority? Or the defaulted loans at Bank of the Bahamas, the Bahamas Development Bank and the Bahamas Agricultural and Industrial Corporation?

What about the uncollected rents at the Industrial park, the downtown Straw Market and Arawak Cay and Potter’s Cay?

Consider decreasing the public sector by 50 per cent Mr Christie. It can be a phased-in process where the government offers tax credits for verified hiring, seconding public workers to private firms with transitions in salaries and benefits and so on.

How about churches taking over certain public schools?

Should the Central Bank consider decreasing the prime rate? Some would disagree, but I think it should.

Why are banks being allowed to prey on Bahamians, with outrageous fees and predatory lending practices? Surely, legislation must be enacted to stop this unscrupulous practice.

And please, Mr Christie, collect outstanding property taxes and other taxes owed to the government. These are but a few ideas that would no doubt help to turn things around.

Like most Bahamians, I fear a devaluation of our currency. Though I don’t see that happening immediately, such an occurrence is on the horizon. If we do not turn things around quickly, we will go down the same path as other countries (think Jamaica) that required an International Monetary Fund bail-out to keep the water running, the hospital open and to keep teachers in schools.

For any fundamental change to occur, we need to rid ourselves of this system of political patronage, corruption, cronyism and nepotism.

Comments and responses to ajbahama@hotmail.com