The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Christie administration has added $1.6 billion to the Bahamas’ national debt over the past three years, continuing to push it beyond the IMF’s so-called ‘danger threshold’.

The Central Bank of the Bahamas’ 2015 annual report, released yesterday, confirmed that this nation’s debt-to-GDP ratio had increased to 76.3 per cent at year-end.

This compared to 73.7 per cent at year-end 2014, and shows the Bahamas’ national debt and associated metrics are continuing to expand beyond the International Monetary Fund’s (IMF) 70 per cent debt-to-GDP benchmark.

“At end-December, the national debt-to-GDP ratio stood at 76.3 per cent, higher than the prior year’s 73.7 per cent rate, while the central government’s liabilities approximated 67.8 per cent of GDP, compared to 65.5 per cent in 2014,” the Central Bank report confirmed

The Fund has consistently warned that countries who go beyond the 70 per cent debt-to-GDP ratio, as the Bahamas has done, will face increasing economic and fiscal problems.

Rising debt results in ever-increasing interest/service costs, which threaten to suck countries into a deepening ‘debt spiral’, where they are forced to borrow to meet existing obligations.

The timing of the Central Bank’s report is unlikely to be welcomed by the Government, given that its 2016-2017 Budget communication is now just 24 hours away.

To the Christie administration’s credit, the rate of increase in the national debt and its key accompanying ratios slowed markedly in 2015 compared to previous years, largely due to the revenue boost provided by Value-Added Tax’s (VAT) introduction.

This was acknowledged by the Central Bank, which said: “The national debt rose by $361.1 million (5.8 per cent) to $6.638 billion at end-2015, albeit lower than the $689 million (12.3 per cent) gain registered in 2014.

“Similarly, the debt-to-GDP ratio firmed by 2.6 percentage points to 76.3 per cent, a notable tapering from the 7.4 percentage point widening to 73.7 per cent in 2014.”

The slowdown in the rate of national debt increase is also in line with the Government’s projections, various Cabinet ministers having warned that the growth could not be reversed overnight.

The Government has first sought to slow the national debt’s growth, via the reduction - and planned elimination - of the multi-million dollar annual fiscal deficits it has been running.

However, the Central Bank’s annual report will likely prompt further charges from the Opposition and private sector that they were misled over the impact of VAT’s introduction.

Many have argued they were under the impression that VAT’s arrival would generate revenues sufficient to eliminate both the annual fiscal deficit and pay down the national debt, but neither has happened yet.

The Central Bank’s annual report also shows that the Bahamas’ national debt has increased from $5.003 billion at year-end 2012 to $6.638 billion at end-December 2015, a rise of some $1.635 billion in just three years under the Christie administration.

The Government will likely argue that the former Ingraham administration was just as profligate, but the ever-increasing national debt - and associated servicing costs - threaten to suck growing sums of money away from critical public services and ‘crowd out’ the private sector.

For the 2015 calendar year, the Government’s direct debt increased by $312.7 million or 5.6 per cent to $5.889 billion, which was “a slowdown from the $590.8 million (11.9 per cent) growth recorded in the prior year”.

The Government’s direct debt-to-GDP ratio stood at 67.7 per cent at year-end 2015, up from 65.5 per cent the year before.

“Government’s contingent liabilities expanded by $48.9 million (7 per cent) to $748.3 million, with the majority of the growth attributed to increases in the loan guarantees for the Public Hospitals Authority, the Water & Sewerage Corporation and Bahamasair,” the Central Bank added.

“Bahamian dollar-denominated debt, which accounted for 71.7 per cent of the total, advanced by $214.5 million (5.4 per cent) to $4.224 billion, while foreign currency obligations firmed by $98.2 million (28.3 per cent) to $1.665 billion.”

The Bahamas’ foreign currency debt, whose servicing consumes this nation’s external reserves, rose by $114.6 million or 4.7 per cent to hit $2.562 billion at year-end 2015.

“Foreign currency debt servicing payments fell by $391.1 million (68.6 per cent) to $178.7 million relative to the previous year, when both the Government and the public corporations undertook significant refinancing,” the Central Bank said.

“The Government’s component fell by $184.1 million (65.7 per cent) to $96.3 million, and public corporations’ by $207 million (71.5 per cent) to $82.4 million.

“Net of refinancing activities, at end-2015, the public debt service to exports ratio rose by 0.8 percentage points to 5.6 per cent, while the ratio of government’s debt service to total revenue narrowed by 1.1 percentage points to 5 per cent.”