The Tribune

By RICHARD COULSON

TYPICAL Bahamians, like citizens everywhere, take little interest in the numbers underlying their country’s successes - or failures.

Certainly the Progressive Liberal Party (PLP) enthusiasts carousing at the recent convention would not have listened to tedious statistics; what they wanted, and got, was Perry Christie’s cheerful face telling them that all would be well under his continued leadership. Many of them were middle-aged, or older. Perhaps a younger audience, more alert to current realities and facing an uncertain future, would have shown greater scepticism. They would have had many good reasons.

I heard Dr Jonathan Rodgers, professional ophthalmologist and amateur economist, give a speech recently about the risks of Bahamian dollar devaluation. He expertly covered all the technical factors leading to a devaluation, and correctly warned that our Central Bank (like any other) would not give advance notice of the dire event. But his advice how a Bahamian should take protective steps was meaningless: buy foreign assets or convert Bahamian currency into US dollars. For most of us, under current exchange controls that’s a non-starter that can only be done in limited amounts incurring fees, taxes and application red-tape. The only solution is abolition of most exchange controls, just as Margaret Thatcher abruptly decreed for the UK in 1979, with the encouragement of a shrewd Chancellor of the Exchequer, who correctly predicted no financial catastrophe.

Sterling was repatriated and new funds were invested - and incidentally the Bank of England could dismiss the 25 per cent of its staff devoted to enforcing exchange control. Bahamians presently holding foreign accounts as a safety net would bring them home if they were assured of the flexibility to re-invest outwards at their option.

Widespread concern about the use of Value Added Tax (VAT) proceeds, now totalling nearly $1 billion annually, is justified, but the arguments have been misconceived. Despite some woolly promises about reducing debt, it was always intended that VAT receipts be paid into the Consolidated Fund, as are other state revenues. Once that’s done, every dollar is fungible and it’s pointless to ask that it be traced to debt reduction or any other specific expenditure. VAT dollars are inextricably commingled with loan dollars. The questions should be: are the individual expenditures necessary and are the funds being efficiently spent? These are hard questions, but not intended for Mr Halkitis. They should be put to the responsible departmental ministers, and ultimately the Prime Minister. Just a few of them are:

• Have Bahamasair’s new aircraft shrunk the annual $20m Government subsidy?

• Are eight $15m gunboats needed for a Defence Force that battles ragged Haitian refugees who never shoot back, poaching fishermen, or drug dealers wielding only handguns before surrender?

• Why are crucial parts of the Critical Care Block still not functioning and the Exuma Clinic still closed after construction costing $14m?

• Do the substantial consulting fees and other organizational costs of National Health Insurance indicate any improvement in affordable health care?

• What do we gain from the fee (never disclosed) paid to the US company PowerSecure to “manage” our electricity supply?

• Above all, do we get any value from the steadily growing Civil Service?

Apparently 4,500 jobs have been added in this administration to an estimated total of over 41,000, an increase of over 10 per cent, with no evidence of wider scope or efficiency of services. The state philosophy of retaining public employees, no matter how incompetent, must be reconsidered. If pressed, many Government workers could find private employment, supported by a compassionate severance scheme that in the long run would cost less than continuing a bloated payroll.

In these days of belt-tightening, Minister Fred Mitchell’s speech at the PLP Convention raises new alarm about staffing inflation. He proposes ballooning his Immigration Department from 300 to 900 officers while their headquarters on Hawkins Hill is notorious as a centre of slow-motion paper-shuffling, lost files and cash that gets “misplaced”, a consequence made easier by official refusal to accept cheques or credit cards.

Perhaps the most prominent elephant in the room, although invisible in the Prime Minister’s euphoric bloviations, is the threat arising from unfunded pension obligations of public ministries and the National Insurance Board. They are mentioned every year, given corrective lip service and then ignored. Totalling now about $2 billion and implacably growing, unless funded or reorganised by well-known means they will reach a crisis point requiring massive taxation or bond borrowing, or a drastic default in pension payments - the one consequence that might cause Obie Ferguson to actually call a general strike instead of just talking about one.

And yet nothing is on the table, even in an election year.

In the face of these politically-charged issues, we can even question the Central Bank’s monetary decision to reduce bank rate by half of one per cent. At first glance it looks like a good step to stimulate our slow-moving economy, by lowering borrowing costs. But consider the actual consequences. According to Bank statistics for mid-2016, companies and individuals were holding about $3.6 billion of savings or fixed-term deposits. Instantly, banks reduced their prime rate by the same half of one per cent, wiping out about $18m annually of depositors’ income. My own bank cancelled the tiny interest it had been paying on demand deposits. But banks and insurance companies will be slow to reduce interest charges on about $3 billion residential mortgages outstanding, and decisions about new investment are never made because of a half per cent decline in the prime rate. End result: thousands of bank depositors are sure to lose income, with no certainty of enjoying lower mortgage costs or seeing new investment growth.

Even in the US, abysmally low deposit rates have stunted any reasonable return from bank deposits. But that country has a dynamic capital market giving savers a huge range of alternative investments, in publicly traded stocks, bonds, commodities, real estate, gold and currencies. In the Bahamas we have few similar choices. Bonds rarely come to the market, and despite the hard work of BISX executives to publicise investment in corporate shares, few equities actively trade and represent but a small fragment of our productive economy. Despite owning over 40 per cent of BISX, Government shows little interest in promoting that body by, for example, suspending business licence fees for BISX-listed companies.

The very structure of such fees imposes a regressive brake on business success. Since they are computed mainly on gross revenues, they cut into net income and in some cases extinguish any profit margin whatever. The official view finds income tax incompatible with the Bahamian image. In reality, business licence fees are an imposition far worse than income tax, just disguised under a misleading name. Our present system should be called a tax on capital, the favourite wealth-killing device of all socialist regimes.

Our Freedom of Information Act is now before Parliament. If enacted and publicised in effective form, I hope it will cause our citizens to scrutinise the underlying facts of our potentially dynamic economy, rather than just listen to political bluster. It’s good that Baha Mar is soon coming on stream, but we need more than that to avoid damage from further downgrades.

• Richard Coulson is a retired lawyer and investment banker born in Nassau and from a long line of Bahamians. He is a financial consultant and author of A Corkscrew Life - adventures of a travelling financier.