The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s finances “will collapse in on themselves” unless the national debt’s increase is halted, the Deputy Prime Minister yesterday warning Bahamians “more pain will be involved”.

K P Turnquest, also minister of finance, told Tribune Business that there was “no way” for a ‘quick fix’ to the Bahamas’ fiscal woes, arguing that the predicament was “just that significant”. He revealed that the spending ‘overhang’ inherited from the former Christie administration would not be completely dealt with this year, as some commitments were “multi-year” and set to last for the medium-term.

A “significant amount of expenditure” had to be taken from the 2017-2018 Budget to “fill” these obligations, Mr Turnquest said, adding that they were “not easy to untangle”.

With every administration since independence having contributed to the $7.5 billion national debt, he urged Bahamians to “exercise the necessary patience” and stick with the fiscal consolidation plan given the rewards it was ultimately designed to produce.

Mr Turnquest said it was “fair enough” to say that the Government was having difficulty bringing its fixed costs under control, with the near-32 per cent reduction in its 2017-2017 first-half deficit stemming entirely from cuts to the Budget’s capital spending side. He conceded that this was not ideal, given that capital projects are designed to upgrade vital infrastructure and deliver long-term value for the Bahamian people, but pledged that the Minnis administration would “make up ground” in this area when it unveils the 2018-2019 Budget in May.

“The reality is there are commitments, past commitments, that were engaged in or commitments previously given that have to be settled,” Mr Turnquest told Tribune Business. “We’ve had to take a significant amount of current expenditure to fill this expenditure. “Even after allowing for all the overhang in the last Budget year, we’re finding additional liabilities that have to be funded from the current year. These have all had [an impact] on cash flow and cash-based expenditure for this year.

“You’ll see a lot of that this year, and ongoing commitments that are no easily untangled, so we have to let them run their course.”

Mr Turnquest, in his mid-year Budget address, blamed recently-discovered spending commitments inherited from the Christie administration for the Government’s non-debt recurrent spending exceeding that of its predecessor.

Stripping out debt principal repayments, Mr Turnquest said fixed-cost spending for the six months to end-December 2017 was slightly ahead of the prior year’s $994 million, coming in at $1.003 billion despite highly-publicised measures such as a public sector hiring freeze and 10 per cent across-the-board spending cut in the public sector.

“The outturn this year was negatively impacted by the overhang commitments of the previous administration that have had to be met during the current fiscal year,” Mr Turnquest told the House of Assembly last week.

“To date, Mr Speaker, we have had to make provisions to settle more than $30 million in verified payment arrears over and above what was known during the Budget exercise last May. There are tens of millions of dollars in remaining commitments from prior years.”

While there was a $92.3 million year-over-year reduction in the first-half GFS deficit to $198 million, the Deputy Prime Minister conceded that this “largely reflected” the 50 per cent slash in capital spending.

This fell from $152.2 million in the same period in 2016-2017 to $75.8 million for the six months to end-December, representing a $76.4 million reduction. While capital spending is easier to cut and control, hence the Government’s focus in this area, Mr Turnquest said it was conscious that long-needed infrastructure upgrades could not be starved of capital for long.

While the Government is looking to private sector capital to finance much of this through private-public partnerships (PPPs), Mr Turnquest said it was aiming to reclaim lost ground on capital projects during the upcoming 2018-2019 Budget year.

“I think that you will continue to find through the end of the [fiscal year] that we will still be conservative in our projects, but coming into the new year we will look to make up ground and complete or initiate projects that bring value to the Bahamian people,” he told Tribune Business.

Asked whether the spending commitment ‘overhang’ created by the former administration will be cleared by the time this fiscal year ends, the Deputy Prime Minister added: “Some of it, unfortunately, is certainly medium term.

“Some of it we will, or have already, retired, and some commitments go to multiple years. These ones we will have to contend with a for a few years yet. I wish I could say that that’s not the case.

“We obviously want to reduce our level of borrowing as much as we can, fit our payments and recurrent expenditure within the Budget, and works as judiciously as we can to reduce overall expenditure.”

Mr Turnquest expressed hope that the Government had managed to get its wage bill “under control” despite the $15 million year-over-year first half increase, and said it remained “very optimistic” of hitting its $323 million full-year deficit target.

This was despite Moody’s estimating that the deficit will instead exceed the $350 million run up the prior year on a cash basis, given that the half-year figure of $198 million is some 61 per cent of the 12-month goal.

The Government traditionally earns the bulk of its revenues in the second half, when Business License fees, real property taxes and commercial motor vehicle licenses all become due. This helps to narrow deficits, but Mr Turnquest said of Moody’s: “I understand their caution.

“The truth of the matter is that for the last five years they’ve been told one story after another, only for the estimates to be overshot. I’m not interested in the talk. The proof is in the pudding. We have to show it.”

Warning that correcting the Bahamas’ public finances is “not an easy task”, the Deputy Prime Minister then warned: “There will be pain involved. Hopefully, at the end of the day, we will have a plan consistent with our philosophy and one that spurs growth in the economy.

“We have to change the trajectory of our debt, otherwise we will find the system will collapse in on itself. We have to get borrowing costs down, get interest rates and repayments down, so we can invest in things that really produce and provide benefits and tangible results.

“We didn’t get here overnight, and there is no way we’re going to be able to correct it overnight. The situation is just that significant. If we continue to be faithful to the plan and exercise the patience necessary to change and correct the course we’re on, we will all be rewarded in terms of competitiveness, a better credit rating, flexibility and freeing the economy from the burden of public debt and rating scrutiny.”