The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government is in danger of “missing the forest for the trees” through its obsession with fiscal numbers and targets, a former finance minister warned yesterday.

James Smith, also a former Central Bank governor, told Tribune Business that while the Minnis administration’s efforts to eliminate the fiscal deficit and lower the $8bn-plus national debt were commendable it seemed to be ignoring the economic needs of its citizens.

He argued that the budget’s fiscal goals needed to be tied in to efforts to grow the Bahamian economy and “improve the lives of its people”, which “is the part I’m not seeing here”.

Describing the annual budget as “very much a guideline”, Mr Smith said the virtual certainty that the government will again miss its revenue targets for 2018-2019 was “not much of a concern” as such goals could be overshot, missed or adjusted to any “gap” was eliminated.

He suggested, though, that the Government was too focused on fiscal numbers and targets that had likely been designed “in conjunction with the IMF” and other international agencies at the expense of initiatives to grow the economy and reduce unemployment.

“They’re suggesting that if I’ve hit my target I’ve done well,” Mr Smith told this newspaper of the Government’s approach. “That’s not the purpose of a budget. It’s normally a statement of guideline for which direction the nation is going in.”

Such “statements”, he suggested, could involve austerity budgets if there was a sudden drop-off in tourism activity, or counter-cyclical policy where deficits were incurred as a means to keep Bahamians employed through investments in public works and infrastructure projects.

“It impacts the society,” Mr Smith explained. “That’s being lost in the over-emphasis on ratios and targets. With this emphasis on the targets and numbers, and the deficit, you’re looking at the trees rather than the forest.

“When you allocate the resources of the state you have to impact the livelihoods of your citizens through policy, and I just don’t see that. Even if you achieve your revenue targets, which is good, GDP may still be falling.

“You may get a shot in the arm with revenue, or reduce expenditure, but that does not mean the economy has grown anything. The budget is 20 percent of the economy, and you could have a balanced budget but widespread unemployment even with all your ratios in line.”

While backing the Government’s decision to establish a Disaster Relief Fund given The Bahamas’ exposure to major hurricanes, Mr Smith said it needed to explain how it was using fiscal policy to “create an upliftment” in people’s lives as opposed to just publishing numbers every quarter.

“The deficit is under control, but the point is: To what end?” he told Tribune Business. “I think they’re trying very hard to get results to keep these indicators in line. The problem with that is how much of that is having a bigger policy impact in terms of economic activity? That part I don’t see.

“Economics is simply making choices given the unlimited wants of society and the Government’s level of resources. How best can you make that happen? It’s really a question of saying: OK, you’re getting these numbers in place, but please don’t take your eye off the bigger picture which is economic development.”