The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government was yesterday urged to focus on cutting spending to pre-recession levels, with the Prime Minister's plan for a 10 per cent across-the-board spending slash hailed as "a good first step".

Gowon Bowe, the Bahamas Institute of Chartered Accountants (BICA) president, told Tribune Business that the last Ingraham and Christie administrations had increased the Government's fixed-cost spending every year even after the 2008-2009 recession was over.

Acknowledging that the Government increased spending over those two years to "fill the void left by the private sector", Mr Bowe said they should have immediately reverted to pre-recession levels once the downturn had passed.

"Neither government reduced spending even though the recession was over," he said. "When the recession ended, even if there was no prosperity in the economy, the Government should have said they were reverting to the previous spending limits pre-recession."

The Ingraham administration's recurrent spending in the years immediately prior to the recession was $1.415 billion in 2006-2007, followed by $1.421 billion in 2007-2008. This increased to $1.499 billion in 2008-2009.

Since then, the Government's recurrent spending has increased by more than $1 billion in nine years, given the $2.676 billion forecast in the 2017-2018 Budget - a level slightly higher than normal, due to debt principal redemptions.

Mr Bowe said government expenditure of around $800 million in 1997 meant that the size of the public sector had effectively tripled over a 20-year period, an increase that could not be explained by inflation, higher salaries or economic expansion alone.

"To move from $800 million 20 years ago, which is a short life span in the life of an economy, while reducing it by 10 per cent is a good first step, the question should be why it's not at 2006-2007 levels," the BICA president told Tribune Business.

"That may be double from 1997, but it's not where we are today. When we talk about expenditure, can we cut this level of expenditure and focus attention on reducing expenditure to where it was pre-recession?"

Mr Bowe was speaking after Prime Minister Dr Hubert Minnis, in a national address last night, announced that the Government was cutting spending by 10 per cent across all ministries in a renewed austerity drive to right the fiscal ship.

Dr Minnis's comments may have been timed for this week's visit of Moody's, which is threatening to cut the Bahamas' sovereign creditworthiness to 'junk' status, but they nevertheless served notice of the Government's intent to restore sustainability to its finances.

Slashing annual recurrent spending to pre-recession levels will be extremely difficult, though, especially given the oft-repeated political line about increased demand for public services by an expanding population, and the need to duplicate infrastructure on every island.

Still, a 10 per cent across-the-board spending cut implies a $267.6 million saving to the taxpayer on recurrent expenditure alone if Dr Minnis is able to achieve his aims.

Robert Myers, the Organisation for Responsible Governance (ORG) principal, described the Prime Minister's promise as "a big deal" if he is able to hit target.

However, he argued that the Government needed to support its austerity drive by enacting laws, such as a Fiscal Responsibility Act, to prevent the Bahamas from getting into similar trouble again.

"We all know talk is cheap, and it's no disrespect to Dr Minnis, but none of his predecessors were able to do what they said," Mr Myers told Tribune Business.

"This administration has just come out of the gate. These are the right points, these are the right issues, these are the right statements. The problem we have is that what is said does not always materialise into action, execution.

"From ORG's standpoint, we encourage the Government to actually put these actions into law," Mr Myers added. "That is in the form of a Fiscal Responsibility Act that limits their spending to GDP.

"It's [the spending cut] excellent, but it doesn't go far enough. We need more than just execution. You can execute that policy, but that's still a policy. We need laws in place to protect the national interest."