The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Chamber of Commerce’s chairman yesterday warned the Bahamas faces “a credibility test”, and expressed fears the Government’s 10 per cent spending cut goal could “harm the economy”.

Michael Maura told Tribune Business this nation needed to prove to Moody’s that it made “the right call” in maintaining the Bahamas’ sovereign ‘investment grade’ rating by executing on the Minnis administration’s fiscal consolidation plan.

While praising the Government’s recently-announced fiscal austerity measures as “admirable”, Mr Maura suggested the targeted 10 per cent slash to its $2.67 billion recurrent expenditure Budget could be too deep.

Speaking in his individual capacity as Chamber chairman, he suggested that achieving this target in one year “may not be prudent”, and that it will have to be a longer-term goal to prevent any dislocation or economic shocks arising from public sector lay-offs and reduced government spending.

“I believe that Moody’s made the right call by leaving the rating at ‘Baa3’, and I think the Government must now prove to Moody’s and others that leaving the Bahamas at ‘Baa3’ was the right call. We have a credibility test here,” Mr Maura told Tribune Business.

“During Moody’s next visit the credit rating agency will be looking for real brick and mortar evidence that improvements have been made in areas like energy. It is unlikely that they will provide us with another pass.”

In electing not to downgrade the Bahamas to so-called ‘junk’ status, Moody’s has effectively given this country 12-18 months of ‘breathing space’ to assess whether it can deliver on the promised cost savings and fiscal consolidation plans.

In the aftermath of Moody’s visit, Prime Minister Dr Hubert Minnis announced a variety of austerity measures, chief among them a public sector hiring freeze and the 10 per cent cut in budgeted recurrent spending for 2017-2018. It has also released a number of workers on short-term contracts once these expire.

Noting that Moody’s had suggested the Government’s plans “have the potential to stabilise the debt if successfully implemented”, Mr Maura expressed concern that the 10 per cent target could be too deep, too quickly.

“I believe that while the objective to reduce Government expenses by 10 per cent is in itself admirable and necessary, the blanket approach may not be prudent and could in fact harm our economy,” he told Tribune Business.

“I suspect that the objective for an overall 10 per cent reduction may, in fact, need to be a longer term initiative which will likely include structural changes to the civil service, the outsourcing of key services better performed by the private sector, the shift to PPP (public-private partnerships) with energy and other utilities, and the general review of expenses.

“Today, cutting 10 per cent from each Ministry may not be possible without significantly impacting a service, critical function or maintaining a subsidy to the vulnerable who will be forced to find the support in another means.”

However, Mr Maura threw his full support behind the Government’s planned hiring freeze. “I support the hiring freeze 1,000 per cent,” he said. 

“I have heard from too many civil servants that speak to the number of persons in the civil service that offer no material value to the department they are assigned to. Government may also consider not renewing contracts for civil service pensioners in an effort to make room to new Bahamian talent.”

The latter move is something the Government also appears to be taking, having announced last week that it was preparing to release some 126 pensioners who had been re-hired at senior positions in the civil service.

Mr Maura said fiscal consolidation also needed to be balanced by higher economic growth rates “now”, and he called for the Government to exit the management and ownership of businesses and industries via privatisation/outsourcing as a way to boost the balance of payments and local capital markets.

Disclosing that the Government had committed to quarterly fiscal review meetings with the Chamber, with the first set to be held in October, he added: “We expect that these meetings will serve to support responsible fiscal management by the Government and, when appropriate, to hold the Government to its fiscal policy commitments.”

He added that the Chamber was represented on both the Government’s National Economic Advisory Committee and Ease of Doing Business Committee, which have been charged with finding economic growth opportunities and removing obstacles to them.

“As for the mention of deficits attributable to hurricanes, I find little comfort here as we do not have a Government insurance plan to mitigate future financial devastation,” Mr Maura said.

“The Federal Emergency Management Agency (FEMA) has a National Flood Insurance Programme in the United States, which provides coverage to millions of households in flood prone areas.

“We must also make it clear that individuals that either choose to live in low lying areas, close to the sea and choose to forgo insurance are going it alone. We cannot keep rebuilding homes for free; we simply can’t afford it.

Mr Maura’s “credibility test” concerns were also echoed by Organisation for Responsible Governance (ORG) principal, Robert Myers, who said Moody’s decision to change the Bahamas’ outlook from ‘stable’ to ‘negative’ was “a clear warning” of its scepticism over this nation’s ability to escape its “socioeconomic quagmire”.

While agreeing that the rating agency’s decision to hold-off on a further downgrade likely reflected the Minnis administration’s frankness and plans, Mr Myers told Tribune Business: ““Moody’s outlook change from stable to negative is a definitive and clear warning that they recognise the difficulty that the Government and the nation faces in lifting itself out of the socioeconomic quagmire.”

He described the Bahamas’ problems as “very menacing”, having built up under successive governments, and reiterated ORG’s prior call for improved governance and education reform.

“A properly educated populous will undoubtedly improve productivity, create greater GDP and improve wage growth. Individual industries and unions must take responsibility and an active role in making this happen,” Mr Myers added.

“Bahamians must understand and accept that the above stated changes are not an option but rather an imperative reality. The failure to act is no doubt a stark reality, and would in itself be a failure on the part of the people and those they elected to govern.

“There is no doubt that the Bahamas is at a pivotal time, and that its future is dependent on a shift in the mentality and culture of its people and governance. Many countries around the world have suffered similar challenges,” he continued.

“New Zealand and Singapore are good examples of small nations who made the positive shift and are now amongst the most successful nations in the world. These two countries offer remarkable examples of what is possible when a people, its leadership and the government accept their weaknesses and work together to fix them once and for all.”