The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas requires “an urgent shift” towards implementing structural reforms that are “growth friendly” but will take time to deliver, the IMF has warned.

The Fund, in its full Article IV report on the Bahamas released last week, warned that many of changes essential to delivering greater GDP growth “will take time to bear fruit”.

It listed improvements to the ‘ease of doing business’, greater workforce productivity and “fundamental” restructurings of the Government’s public corporations as policy priorities that the Christie administration needs to focus on.

“Many structural measures, such as fundamental state-owned enterprise (SOE) reforms, will take time to bear fruit,” the IMF’s Article IV consultation warned.

“Staff therefore argued for an urgent shift towards implementation of growth-friendly structural reforms.”

It pointed out that the Bahamas’ “negative total factor productivity growth”, combined with a reduced impact from both capital (investment dollars) and the workforce, had resulted in “a significant decline in potential growth in 2000”.

With unemployment “consistently increasing” over the same period, the Fund added: “Alternative indicators of competitiveness point to persistent weaknesses, such as elevated energy costs and high costs of doing business.

“Reforms to improve the ease of doing business should focus on strengthening contract enforcement and frameworks for resolving insolvencies and registering property, improving access to credit, and alleviating the administrative burden and time necessary to start a business.”

Prime Minister Perry Christie last month acknowledged the need for a dramatic improvement in the Bahamas’ ‘ease of doing business’, with this nation having slipped to 106th in the World Bank’s rankings.

Acknowledging that such a rating was “not acceptable”, Mr Christie conceded: ““For far too long we have been too complacent.

“While there have been important changes over the decades, we have not as a country made a collaborative and concerted effort to change the Bahamian business environment and we are paying heavily for that now.”

He continued: “Our business environment, unfortunately, is know for its red tape and bureaucracy. Our agencies are too often likely to say come back another day, than offer advice on how to achieve the desired outcome.”

While acknowledging that a problem exists is always the first step, the private sector is now eagerly watching to see what, if anything, the Government does in practice to improve the ‘ease of doing business’.

And the IMF’s comments indicate that the time the Bahamas’ has to enact meaningful reforms, and improve its economic competitiveness, may already be running out.

Turning to the Bahamian workforce, the IMF said the Bahamas’ priority was to develop its human capital and reduce “skill mismatches”.

It added: “Enterprise surveys suggest that the main business obstacle cited by firms is an inadequately educated workforce.

“Policies should aim at improving productivity through better educational outcomes, further strengthening existing apprenticeship and vocational training programmes, easing restrictions on labour mobility and seeking to reverse the ‘brain drain’ of skilled Bahamians.”

The Government has also focused on this area, having created the National Training Agency and made a further $22 million allocation in the 2016-2017 Budget for ‘joint venture’ apprenticeship programmes with the private sector that are designed to provide young Bahamians with essential job skills.

Elsewhere, the IMF reiterated long-standing calls to reform loss-making corporations such as Bahamasair and the Water & Sewerage Corporation, given the multi-million dollar burden they represented for Bahamian taxpayers.

“Policies should aim at reducing energy and other utility costs, and better aligning wages with productivity,” the IMF said.

“Staff urged the authorities to advance state-owned enterprise (SOE) reforms, including reducing the entities’ operational inefficiencies, fostering an enabling regulatory environment and aligning tariffs with costs of service delivery.

“Regular financial reporting and consistent monitoring are also essential to ensuring accountability.”

The IMF praised the Christie administration for its energy sector reforms to-date, including the management contract with PowerSecure and creation of Bahamas Power & Light (BPL) as the new operating subsidiary.

“ Staff argued that reforms should be extended to other state-owned enterprises, including Bahamasair and the Water and Sewerage Corporation,” the Article IV report added.

Yet BPL is perhaps the best example of the IMF’s warning that growth-enhancing structural reforms will “take time to bear fruit”.

With PowerSecure now almost six months into its five-year contract, Bahamians have seen little difference between BPL and its Bahamas Electricity Corporation (BEC) predecessor, with blackouts still occurring on a regular basis.

Elsewhere, the IMF said it was vital for the Bahamas to address the commercial banking sector’s $1.13 billion loan arrears and “clean up” individual institutions’ balance sheets.

This, it added, would help to release the near-$1.5 billion in excess liquidity in the banking system for productive lending purposes, thereby helping to revive economic growth.

However, the Article IV report revealed that the Christie administration is cool on bank proposals to place remove distressed mortgage assets from the sector’s balance sheets and transfer them to special purpose vehicles (SPVs).

Despite the fact just such a solution was employed to help ‘bail out’ the Government-owned Bank of the Bahamas, the IMF said “social concerns” were a key factor in the Christie administration’s thinking.

This is likely ‘code speak’ for the Government’s fear that hundreds of Bahamian families, who are delinquent on their mortgages, could lose their homes - a particularly big concern when there is a general election upcoming.

“Staff noted that discussions between the Government and banks about placing distressed mortgage assets in special purpose vehicles (SPVs) have been protracted, owing in part to social concerns,” the IMF’s Article IV report said.

“Resolving debt overhang in a timely and socially responsible manner would help unlock resources for private sector financing, thereby supporting growth and further strengthening financial stability.”

Ascendancy (Bahamas), a joint venture involving a Mexican firm and Bahamian interests, such as RoyalStar Assurance, has been formed to purchase distressed mortgage assets from the likes of Scotiabank at a price equivalent to 25 cents on the $1.

However, the Government has been reluctant to give regulatory approval for the initiative.

The IMF urged the Government to create “a specialised agency” to tackle the banking industry’s $843 million ($455 million relates to mortgages) non-performing loan crisis, rather than the Mortgage Relief Plan it has initiated.

“Work on establishing a credit bureau, which could eventually improve well-grounded access to credit, continues,” the Fund added.

“Prompt finalisation of this work is key, given that more time will be required to build comprehensive information regarding existing debt obligations and repayment histories.”

The IMF said the Christie administration was meanwhile placing its faith in foreign direct investment (FDI) projects “coming on stream in the near term” to reduce unemployment and boost GDP growth.

“Authorities nevertheless fully agree with the need to design and implement an ambitious growth strategy, acknowledging that weak competitiveness, low productivity and high costs of doing business are hampering growth,” the Fund added of the Government’s response to its findings.

“The authorities recognised the need for a decisive and timely resolution of non-performing loans (NPLs). They noted that banks have been more aggressive recently in restructuring and other forms of mortgage relief and customer assistance programmes.

“The authorities admitted that progress has been slow, but that they continue to work closely with banks on a new framework for resolution.”