By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
Fiscal watchdogs yesterday voiced alarm that The Bahamas is "on the precipice of abject failure" based on the sharp post-Dorian hikes in the government's annual fiscal deficits and national debt.
Rick Lowe, an executive with the Nassau Institute think-tank, told Tribune Business that "years and years of neglect and kicking the can down the road" had left The Bahamas in a precarious position that was now being exacerbated by the scale of Dorian restoration costs.
The government's 2019 Fiscal Strategy Report, released yesterday, discloses that its direct debt is set to increase by a near-$1.3bn over the next five years due to the huge blow inflicted on the public finances by Dorian's devastation.
The fiscal deficit for the 2019-2020 budget year is projected to increase by a further $104m beyond initial forecasts to some $677.5m, and it will remain in nine-figure territory for four years before finally hitting the Fiscal Responsibility Act's 0.5 percent of GDP target in 2024-2025 - some five years after it was predicted to hit this level.
"This country is on the precipice of abject failure," Mr Lowe told Tribune Business when confronted with the report's contents. "I'm glad to see they're at least taking account, but it's frightening how close we are to bankruptcy. I'm glad they're taking stock, but boy, it's a hell of a hole to dig out of. Holy smoke.
"Neil, it is frightening. I'm glad I'm closer to retirement than just starting out. Maybe retirement won't be so fun after all if I live long enough to retire. It's just years and years or neglect, and kicking the can down the road in every aspect of governance. The only positive thing is that at least we're learning where we're at."
Both Mr Lowe and Robert Myers, the Organisation for Responsible Governance's (ORG) principal, voiced concern that the report was relatively light on plans to tackle the Government's unfunded civil service pension liabilities which are now thought to be approaching the $2bn mark.
While few details were provided, the report did confirm that the Government is planning to require new civil service hires to contribute to financing their own retirement through the creation of a defined contribution pension plan.
"The central Government has an unfunded defined pension arrangement, with a growing liability which is a significant fiscal risk. The Government acknowledges this exposure and is in discussion with advisors on initiatives to limit this exposure," the Fiscal Strategy Report said.
"As part of its mitigation initiatives during the fiscal planning horizon, the Government is intending to introduce a defined contribution-type pension plan for new employees which will allow for greater sustainability of these costs."
K Peter Turnquest, deputy prime minister, told Tribune Business that the Cabinet had not given "a definitive timeline" for the introduction of this pension plan structure even though previous research by the KPMG accounting firm suggests this unfunded liability is now likely to be approaching $2bn.
The 2018-2019 Budget showed the Government is currently allocating between $95m to $100m each year to finance civil service pensions during the three fiscal years to 2020-2021.
KPMG has estimated that the unfunded, 'pay-as-you-go', civil service pension liabilities are set to increase to $2.5bn by 2022, and $4.1bn by 2032, unless reforms are enacted.
And the International Monetary Fund (IMF), in its Article IV report last year, agreed that the current system - where civil servants contribute nothing to funding their retirement - is "unsustainable". It added: "Staff analysis in the 2016 Article IV Staff report noted that accrued government pension liabilities totaled $1.5bn in 2012, and would rise to $3.7bn by 2030 as the population ages."
Mr Turnquest yesterday told the House of Assembly that the Government will "not spend wildly" in financing post-Dorian recovery, and pledged that it will not be "derailed" from its fiscal consolidation strategy.
Yet Mr Myers argued that much will have to go right for the Government over the next five years for its forecasts to bear fruit, especially given The Bahamas' exposure to the effects of a global recession and another Dorian-type disaster. He added that the forecasts will also have to survive a potential change of government at the next general election which must be held by 2022.
"They're not considering that we might have another storm next year, that we might have a global recession next year," Mr Myers told Tribune Business. "These are real issues. Responsible people have contingency plans for these things but we have a hope and a prayer that they don't happen.
"We have no contingency plan, and we already have these liabilities with Bank of The Bahamas and the BTC pension fund. What don't we know? Is anybody else hiding multi-million dollar losses, corruption and inefficiency? For God's sake tighten up. It's just obscene. I don't know what else to say.
"The projections assume whoever gets into government between now and then doesn't torpedo your plans and start some massive capital spending programme, and starts doing more irresponsible things. Come on, we certainly know what the Government and various administrations are capable of. It doesn't give you a lot of faith. We're living through this and it's a disaster. The fiscal condition of the Government is very, very poor."
Comments
concerned799 4 years, 10 months ago
A great start would be a sale of BEC/BPL to the private sector.
Clearly the treasury can not afford to cover dollar for dollar what everyone wants from it. Someone is just going to have to admit the truth one day.
Our deficits are too high.
It was a huge mistake to have just done VAT, and hiked VAT without also cuts in the civil service and also a reduction in our bonds from debt holders. And this was before Dorian even!
Everyone needs to be at the table and offering things up not just the tax payer/common Bahamian who does not have a gold plated pension/bond holdings. Everyone needs to get to the table it should have happened a long time ago.
We can do this now and the Bahamas can control the outcome or it can do it at the demand of the IMF and it will not control the outcome. Which do people want?
Dawes 4 years, 10 months ago
When VAT was being introduced either John Rolle or Ishamel Lightbourne said we were close to being broke and there was only 3 options. 1) Increase Taxes, 2) Cut Government Expenditure and 3) a mixture of both. Whoever it was said there was no political will to cut expenditure. Nothing has changed and as such i fully expect this to be bankrupt nation in the near future. So thanks Pindling (not as much as the rest as the deficit really kicked in after he was in power), Ingraham, Christie and now Minnis, you lot have helped destroy us.
proudloudandfnm 4 years, 10 months ago
Actually government has hired more useless staff since then...
concerned799 4 years, 10 months ago
It has not happened yet, so people need to muster the political will to get our finances under control. By having all parties come to the table people can now its just not them who will be asked to give up, but everyone so we can avoid a bankruptcy, the worst of all options.
birdiestrachan 4 years, 10 months ago
The Bahamas is in deep trouble. a fact that can not be denied, the life of the average Bahamian the majority is not getting better,
ThisIsOurs 4 years, 10 months ago
A great start would be to stop blocking people with innovative ideas so you and your buddy could steal it or prevent that know it all from a possible opportunity. It's almost like these guys go through a behind the scenes crash course in "Maintaining an Oligarchy" when they become ministers.
If we had one Jeff Besos in this country, one Mark Zuckerberg we could eclipse their deficit. Imagine if we had 100. The SBDC was a great idea...but those businesses are being severely underfunded. It might explain why only low risk operations are being supported
birdiestrachan 4 years, 10 months ago
BTC pension fund lies at the feet of Mr: Hubert Ingraham He made a very bad deal when he sold BTC. Poor Bahamians will pay the price,
many Bahamians do not live long enough to receive their pensions, so this is is not the only problem.
proudloudandfnm 4 years, 10 months ago
He made an excellent deal selling BTC. Have you not been paying attention? BTC is pretty much done. He knew BTC could never survive in a competitive market and today he has been proven right.... The man is a genius....
banker 4 years, 10 months ago
Concur.
Bahamianbychoice 4 years, 10 months ago
The costs is BPL have yet to be realized on the GDP which will further add stress. How sad for the young people. Corruption is killing this country...no wonder there is such a brain drain..
sheeprunner12 4 years, 10 months ago
Agree ............ Government needs to SELL or DISSOLVE all of its corporations and SOEs ............... The Government needs to cut its Civil Service and Government Departments by 50% .............. The economy is stagnant and unproductive ............. It must do that NOW.
ThisIsOurs 4 years, 10 months ago
you're looking for economic collapse if you fire 50% of workers. those persons buy food pay bills support small business and have outstanding mortgages. Growing is the answer. but that will take leaders willing to share the economic pie and I don't know if well ever have that. look at how Minnis tried to single handedly manoeuvre Oban, apparentky behind even his own cabinet, those are not the actions of a man looking out for country
concerned799 4 years, 10 months ago
Endless growth eh? How's that working out for the planet? Besides, whats the use in more growth if deficits were to just climb with it?
ThisIsOurs 4 years, 10 months ago
i assume growth means more revenue to the govt since more new businesses are paying taxes. more revenue, properly managed, means lower deficits. seems tobe working for the us and china. Trump may succeed in trashing it all before he leaves though
concerned799 4 years, 10 months ago
Hows all this endless growth working for the planet tho? Did you see we know have Cat6 huricanes now? Whatever more revenue the govt makes in taxes, is well 4-5X overshot by the bill for a Cat6 huricane. So you can not "grow" your way out of this.
Dawes 4 years, 10 months ago
And this is the problem. There is no political will to make the hard decision to downsize government instead there is a hope that we will somehow grow out of our problems. All the while are debt grows and we become more and more inefficient. We will not grow out of our problems, and the Government is at the limits of what they can tax the people, so this only leaves two other options. One cut Government expenditure (include laying people off) or two borrow the shortfall. Doing two just puts the inevitable collapse off for a while, but doesn't get rid of it.
ThisIsOurs 4 years, 10 months ago
ok go ahead and fire 50% of govt workers next week. If you're a business owner or operate a bank please start getting your plan together to shut down. and with your company or financial institution employer shutting down, you get your tennis shoes out in prep for the bread lines
No economy could take that shock.
I've presented over and over again an approach to downsizing. Pay those persons identified for separation for another 1 to 2 years in anticipation of release. As a condition of payment, they enroll in a select list of training programmes. Gaining skills for future jobs. anyone not attending or not maintaining grades gets a salary reduction. As a part of the program you can also tackle thd unemployment problem, if yiu can find trained unemployed persons who can operate as instructors, those persons are paid 20 each per trainee, the money deducted from the trainer's salary as their enrollment cost so they're contributing "something to their education. Abject failure or clear lack of effort result in termination. At the end of the 2 years you've downsized but you've made maybe 60% or more of those persons productive in some other area. I made this suggestion in 2017. The govt has had 2 years to implement it. This year theyd be downsizing and we'd have a cadre of first world skilled workers
Sickened 4 years, 10 months ago
All of the above is based on there being another job for these people to do. Unfortunately there are no other jobs for anybody. The ONLY thing for these people to do is to start some sort of small business and hope to earn enough to feed themselves.
ThisIsOurs 4 years, 10 months ago
exactly my point
ThisIsOurs 4 years, 10 months ago
and I'm not talking about training people to use Microsoft word, it's a nice skill to have but that's not the end goal. you need competitive first world skills blue or white collar
concerned799 4 years, 10 months ago
Kick out the cruise ships and tho less people will visit to stay in hotels, those hotel jobs will provide the required employment numbers. Right now we see pennies on the dollar from the "cruise industry".
ThisIsOurs 4 years, 10 months ago
actually a good place to start for "skills training" is the recurrent work permit applications combined with a study of jobs of the future.
concerned799 4 years, 10 months ago
You forget that in addition to cutting spending, and raising VAT the government can/should demand the bond holders be part of the solution and accept a reduction in what we owe. If any one of the above three parties (the public servants, the tax payer and the bond holder) are not at the table making cuts or gives in the case of us all paying more VAT we will never solve the problem. We must forget the illusion "growth" as a way out is either possible or desireable from an ecological standpoint in any event.
Government needs to step up here, if one or all of the parties above won't come to the table, or won't offer up, it must lead and announce what each of the three parties will be giving and that's that. Matter done.
bcitizen 4 years, 10 months ago
The civil service is killing this country. It is overstaffed and we get less and less efficiency with more red tape. The government needs shrinking and need to make efficiency gains. Civil servants need to meet some kind of performance benchmarks or be fired. Job security on the public sector needs to go.
Sickened 4 years, 10 months ago
Unfortunately what the world needs now is a war. Hard to say but the basic truth is that with the global economy slowing down dramatically, most countries will have to go further into debt in order to support those who have no opportunity for employment. A different sort of collapse is coming and it is caused by overpopulation. Unfortunately, most countries are overpopulated so there is nowhere for economic refugees to go too. No country needs additional labour.
Tarzan 4 years, 10 months ago
Total nonsense on steroids.
Sickened 4 years, 10 months ago
You still living in the jungle huh Tarzan! Lol. Eat your beetles and worms and scoop water with your hands... be content.
banker 4 years, 10 months ago
This is really true. It is due to technology and globalization. It you do not have a cadre of knowledge workers, you are sunk. Robots, Artificial Intelligence and Machine Learning are taking away labour jobs.
BONEFISH 4 years, 10 months ago
The raising of the vat rate from 7.5% to 12% was a mistake.It was not supported by any serious economic studies.That was an attempt to offset revenues losted when bread basket items were made vat free.When the vat was raised,consumers reduced their spending.That is one of the reasons,the government did not meet the revenue targets.They tried of offset that by reducing their spending.But government spending is a big part of this economy.Then Dorian hit in September.Thatis how we reach this point.That what somebody who understands economics told me.It may be very painful in this country thenextfewyears.
Well_mudda_take_sic 4 years, 10 months ago
Thousands of Bahamians who were working in the private sector lost their jobs and became unemployed as a result of Hurricane Dorian. But not one member of our civil workforce lost their government pay even in instances where they no longer had their government job in Abaco or Grand Bahama. The civil workforce whose jobs were impacted by Dorian continued to be paid while they were reshuffled to some other already over-bloated government department or post. This only serves to prove that Minnis and Turnquest can only govern by more borrowing and more taxes. They are either unwilling (more likely unable) to reduce the very costly and unsustainable over-bloated size of our nonproductive civil workforce. That's the harsh reality of the situation!
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