The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Deputy Prime Minister yesterday pledged that the Government “won’t rest on our laurels” after the IMF urged it to tackle “structural” obstacles to higher medium-term GDP growth.

K P Turnquest told Tribune Business that delivering true benefits for the Bahamian people was more important than the International Monetary Fund’s (IMF) latest encouragement for the Minnis administration to proceed with its economic and fiscal reform plans.

The Fund, in a statement issued following its December 12-18 visit to the Bahamas, effectively urged the Government to get on with implementing its programme to drag the Bahamas out of “a prolonged period of stagnation”.

It adopted a similar stance to the credit rating agencies, Moody’s and Standard & Poor’s (S&P), indicating that while impressed with the economic growth and fiscal consolidation strategy it is now watching to see if the Government can execute and deliver on its promises.

The IMF marginally cut its 2017 economic growth projection for the Bahamas, narrowing this from 1.8 per cent to 1.6 per cent, but maintained its 2.5 per cent expansion forecast for 2018 based on Baha Mar’s full opening and an improving US economy.

It warned, though, that these growth projections were only a short-term ‘bump’ due to Baha Mar, and fundamental structural reforms - especially in regard to the energy sector, ease of doing business, credit allocation and loss-making state-owned enterprises (SOEs) - were critical to maintaining similar GDP expansion in the medium to long-term.

“After a prolonged period of stagnation, the Bahamas’ real GDP is projected to grow 1.6 per cent in 2017 and 2.5 per cent in 2018 on the back of a stronger US economy, the phased opening of Baha Mar, and foreign direct investment (FDI) related construction activity,” said the IMF’s Bahamas mission chief, Fabian Valencia.

“However, lifting growth in the medium-term requires decisive action on structural reforms, particularly in the energy sector and in improving the business environment. The expected introduction of a Credit Bureau - with legislation currently in Parliament - should help improve the private sector’s access to credit and support growth in the medium term.”

The Credit Reporting Bill 2017 is due to be debated by Parliament during the 2018 first quarter, with the Minnis administration also promising that reforms to improve the Bahamas’ ‘ease of doing business’ will be unveiled during the same period.

The Government’s energy sector strategy is less obvious, though. Having severed ties with PowerSecure as Bahamas Power & Light’s (BPL) operating partner, the Minnis administration is seemingly waiting on the utility’s Board and new management to devise a turnaround strategy.

Mr Turnquest, agreeing with Tribune Business’s analysis of the IMF’s statement, yesterday said the Government was focused on ensuring that all state-owned enterprises (SOEs) became “cost recovery centres” so that it could eliminate nearly $430 million in annual taxpayer subsidies.

He added of the Fund’s message: “We must continue on with the plans we have articulated to them in last year’s Article IV consultation.

“So far they appear pleased with the steps we have been taking, and demonstrating our commitment, which we have shown in bringing the legislation we have laid and taking the steps we have done,” the Deputy Prime Minister continued. “Overall, they are pleased we are proceeding in the right direction.”

Mr Turnquest said the Government’s priority was to ensure the Bahamian people benefited from its economic reforms, rather than trying to satisfy the IMF and credit rating agencies.

“Again, I take all these things with a grain of salt,” he told Tribune Business. “The fact they are satisfied we are making progress is certainly encouraging, but we can’t rest on our laurels.

“We have to demonstrate, more so to the Bahamian people than the rating agencies, that we are making progress in terms of reforms and growth. That’s what we’re focusing on.”

To deliver the higher medium-term growth demanded by the IMF, Mr Turnquest said the Government was focused on “getting SOEs back into line and becoming cost recovery centres”.

He added that the Commercial Enterprises Act, together with revival of Grand Bahama’s economy via the Grand Lucayan’s sale and opening, were also identified by the Deputy Prime Minister as key to this strategy.

The IMF said more work remained to stabilise the Government’s fiscal position and debt, and eliminate the $300 million-plus annual deficits.

“Turning state-owned enterprises (SOEs) self-sufficient and reforming the public pension system remain critical to ensure long-term fiscal sustainability,” the Fund added, while pointing to the need to slash the Government’s recurrent (fixed cost) spending.

The Minnis administration has attempted to tackle the latter with a hiring freeze, not renewing expired contracts for temporary workers, and slashing Budget spending allocations ‘across the board’ by 10 per cent.

“Following a sharp increase in the fiscal deficit to 5.8 per cent of GDP in fiscal year 2017, the new administration has committed to reduce it to sustainable levels and has announced expenditure cuts across the board,” the IMF statement said.

“As noted during the 2017 Article IV consultation, fiscal consolidation should have a strong focus on reducing current expenditure.... Introducing an effective fiscal rule, as part of a fiscal framework, should enhance fiscal discipline.

“A recent successful placement of a US$750 million bond reflects market confidence in the Government’s commitment to fiscal discipline. The placement has also helped strengthening foreign reserves.”

The Government has promised to introduce Fiscal Responsibility legislation, including so-called ‘fiscal rules’, in time for the 2018-2019 Budget year. However, it has yet to tackle the multi-billion dollar liability presented by unfunded civil service pensions.

The IMF’s Mr Valencia added: “Commercial banks remain well capitalised and liquid. Non-performing loans (NPLs) declined to 9.5 per cent of total loans as of September, down from 11.3 per cent in June, reflecting mainly a large disposal of non-performing loans (NPLs) by the Bank of the Bahamas.

“The Central Bank has also stepped up efforts to encourage banks to speed up the resolution of remaining NPLs.”

The IMF also welcomed the Bahamas’ signing on to the OECD’s tax transparency, automatic exchange of tax information and anti-avoidance initiatives as helping to “mitigate the withdrawal of correspondent banking relationships and safeguard the integrity of the financial sector”.

It urged the Government and financial services regulators to continue with enhancements to the Bahamas’ anti-money laundering regime.