The Tribune

By NEIL HARTNELL

Tribune Business

Editor

nhartnell@tribunemedia.net

THE Government is not targeting the IMF's recommended $70 million wage bill slash, the Deputy Prime Minister said yesterday, but it must right the Bahamas' "upside down" economy.

K P Turnquest told Tribune Business that the Minnis administration will use 'a scalpel rather than a shotgun' to right-size the public sector, suggesting that the former government had used it as an employment agency during its five-year term.

This, he argued, had turned the economy "upside down" by making the Government - rather than the private sector - "the major employer" and job creator, while placing an ever-increasing burden on Bahamian taxpayers and the "productive sector" to finance a bloated public service.

Mr Turnquest said reversing this situation was among the Government's top priorities, but any civil service downsizing would be done "organically" by not replacing non-essential positions when staff leave or retire.

The International Monetary Fund (IMF), in its Article IV report, had recommended that the Government could achieve more than $200 million in Budget savings through a combination of reducing the civil service wage bill to its 2005-2016 average; requiring public servants to contribute to their own pensions; and cutting subsidies to state-owned corporations by a sum equivalent to 1.25 per cent of GDP.

The Fund targeted wage bill savings equivalent to 0.8 per cent of GDP, or just below $70 million, and its recommendation set off alarm bells among many Bahamians and public sector workers, who feared instant - and widespread - redundancies if the Government adopted its suggestions.

Mr Turnquest, though, yesterday pledged that civil service cuts would first be sought through "natural attrition" rather than forced lay-offs, adding that the Government had set no savings target.

As for state-owned enterprises (SOEs), he said the Minnis administration had told them to focus on supply-side solutions and become more efficient, rather than impose "dramatic rate increases" on Bahamian consumers to cover their costs.

"At the end of the day I don't know that it's going to be $70 million in cuts," the Deputy Prime Minister told Tribune Business, when asked if the Government planned to follow the IMF's recurrent spending reduction 'road map'.

"We do intend to make the system more efficient and more affordable. We hope to do that through natural attrition, and that's our focus."

Mr Turnquest, speaking from Washington DC where he is attending IMF and World Bank annual meetings, said the Government was following its own fiscal consolidation plan, rather than being dictated to by the IMF and credit rating agencies.

"The Government of the Bahamas has outlined a plan for the IMF and Moody's, and will do the same when Standard & Poor's comes," he added. "We're not going to be reactive with our response to any of the agencies.

"We're going to be disciplined in our approach and follow our plan..... It's one where we recognise we have to keep recurrent expenditure down at a sustainable level, because at the current trajectory it's unsustainable, and that's why the debt has skyrocketed.

"We will take corrective measures, but will not take any decision that hampers the economy or the creation of opportunities and jobs."

Mr Turnquest's comments are a recognition that the Government will 'bite off more than it can chew' if it tries to right-size the public sector in one go, as this would produce a significant increase in unemployment and cut disposable incomes/spending power, with negative implications for the economy and Bahamian society.

The IMF's Article IV report blamed the Christie administration's "lax spending controls" prior to the May 10 general election for the spike in recurrent spending, which comprises the Government's fixed costs - wages, benefits and rents.

The Deputy Prime Minister yesterday said this had resulted in an unhealthy 'role reversal', where the Government had taken over from the private sector as the main economic growth engine.

"With the lack of growth, and the inability of the private sector to absorb the capacity in the system, the Government has been absorbing that over the past five years to keep the unemployment rate artificially down," Mr Turnquest told Tribune Business.

"The funnel is upside down. The public sector is the major employer and being funded by the lower end, the private sector. It's unsustainable, and we have to figure out how broaden the base through the private sector so that we relieve the burden from the average citizen and productive sector."

He added that the Government was assessing how to "graduate" veteran civil servants from the public service once they reached retirement age, in a bid to enable the recruitment of younger workers and to allow the private sector to benefit from their skills.

"It is intended that it will be very organically done," Mr Turnquest said, "meaning that as civil servants reach time and age, they will be graduated out of the system and it will build capacity with the private sector."

He added that the Government was also examining the issue of public servants contributing to their retirement income, which would replace the current 'pay as you go' defined benefit scheme that is 100 per cent financed by the taxpayer.

And, with some $429 million in subsidies being provided to state-owned enterprises (SOEs) during the 2017-2018 fiscal year, Mr Turnquest said all had been "challenged" by the Minnis administration to "wean themselves off the public purse".

"One of the challenges we've put out to the SOEs is that they must come up with plans that ensure they are not dependent on the public sector for support," he told Tribune Business.

"We want to look at ways to have cost recovery at these entities without creating dramatic increases in rates. They have to become more efficient."

Mr Turnquest continued: "We're saying to them that you have to wean yourself off the public purse, otherwise we will have to make some decisions about whether to privatise, and take them to a private sector mentality. Become competitive and efficient engines of growth."

He added that "sacrifice" and support from the Bahamian public were vital to turning the country's fiscal and economic situation around, and said: "I'm confident better days are ahead of us if we can impose the kind of financial discipline every family has to go through."