The Tribune

* Governance reformer urges: 'Let's see some action'

* Economist's concerns on higher refinancing rates

* Little progress on multi-billion public pension woe

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government was yesterday warned that "talk is cheap" when it comes to The Bahamas' mounting fiscal and economic woes, as governance reformers demanded: "Let's see some action."

Robert Myers, the Organisation for Responsible Governance's principal, told Tribune Business "we've heard it all before" with the Government's Fiscal Strategy Report laying out little that was new in terms of the country's problems or a strategy for addressing both GDP growth and the expanding national debt and fiscal deficit.

"They've kicked that can down the road as far as they can," he said of a national debt that is projected to hit the $10.4bn mark by mid-2022. "I would say talk is cheap. Let's see action. We've heard it all before. Start making it happen.

"I don't want to hear any more talk. Nobody believes in that any more. The public sector and the administration has to start making it happen. It's time for them to act and stop talking. If they're not going to act then we need to find somebody else who will. That's then bottom line. The talk is over, over. Act or get out.

"They haven't made the ease and cost of business any lower. They've added more bureaucracy, they haven't increased foreign direct investment (FDI), have not reduced the cost of the public sector and not eliminated any of these massive loss-making state-owned enterprises (SOEs). They haven't done any of it. Everyone is tried of hearing it."

My Myers was especially vexed by the seemingly little progress made in addressing the Government's likely multi-billion dollar liabilities related to unfunded public sector pensions, as the language in the latest Fiscal Strategy Report differed little from its predecessor of just over one year ago.

"The growing liability on the Government’s unfunded defined pension plan remains a significant source of fiscal risk," the Fiscal Strategy Report, tabled in the House of Assembly on Wednesday, said. "Discussions are ongoing with advisors on initiatives to limit this exposure, including the proposed introduction of a defined contribution plan for new employees."

The latter move does not address the multi-billion dollar obligation owed to existing civil servants and retirees, which is not included in The Bahamas' national debt, and Mr Myers blasted: "Why haven't they started addressing that already? I would say that task is deep."

The International Monetary Fund (IMF), as recently as its 2018 Article IV report on The Bahamas, warned that the current system - where civil servants contribute nothing to funding their retirement - is "unsustainable".

The Washington DC-based fund listed civil service pensions, together with the public sector's wage bill and loss-making state-owned enterprises (SOEs), as three key reforms that the government must target if it is to reverse The Bahamas' fiscal decline - and that was before both Hurricane Dorian and the COVID-19 pandemic.

"The civil servants' pension system is unsustainable," the IMF warned two years' ago. "Government employees draw pensions at retirement without contributing to the system while employed. 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."

The IMF called for reforms that involve "moving to a contributory regime in the near term, and to a defined-contribution scheme in the medium-term". This would require civil servants to contribute a portion of their salary to funding their retirement, rather than having this financed 100 percent by the taxpayer through the budget - as is done currently.

A presentation delivered by the KPMG accounting firm in 2013, the early years of the last Christie administration, estimated the unfunded, "pay-as-you-go", civil service pension liabilities at around $1.5bn. These liabilities were set to increase to $2.5bn by 2022, and $4.1bn by 2032, unless reforms are enacted.

Meanwhile, Rupert Pinder, an economist who lectures at the University of The Bahamas (UoB), yesterday voiced alarm at the near $1.5bn worth of debt principal that is set to mature and become due for repayment over the next year.

While Marlon Johnson, the Ministry of Finance's acting financial secretary, had expressed confidence that the Government will experience "no challenge" in meeting its obligations, Mr Pinder warned that refinancing these facilities would likely result in increased debt servicing costs due to the higher interest rate environment resulting from COVID-19 and The Bahamas' recent downgrades.

"To be honest with you, it was really like almost a surreal moment. To me, it's kind of eerie," he said of The Bahamas' near-term debt repayment burden. "To me, that's really scary. As a backdrop to all of this you have your existing stock of debt you have to continue to service.

"If you were to make an attempt to refinance that debt stock over a number of years in this climate you are facing higher interest rate costs. It's not as if you are refinancing in a low interest rate environment."

The Fiscal Strategy Report revealed that a substantial chunk of the Government's borrowings - $3.318bn or some 40.5 percent of the total $8.191bn at end-June 2020 - is due for repayment over the next five years. Of that sum, almost $1.5bn or nearly 18 percent of the total, is due to mature within the next 12 months.

The report disclosed that much principal repayment is front-loaded at a time when the Government's revenues are down by as much as 50 percent due to COVID-19's devastating impact on tourism and the Bahamian economy, thus severely impacting its cash flow.

A graph showing "forecasted redemptions" of the Government's medium and long-term debt revealed that principal worth $880.6m, $682m, $405.9m, and $774.5m is due for repayment in 2021, 2022, 2023 and 2024 respectively.

This collectively totals $2.743bn, and the Fiscal Strategy Report makes clear these figures do not include $736.8m worth of short-term Treasury Bills, which typically carry between 91 and 182-day maturities, as well as $208.2m in "notes" that mature in 30, 90 and 180-terms.

The report also highlighted how fragile the Bahamian economy and government finances are, and the tenuous nature of the fiscal projections, amid the uncertainties created by COVID-19. It warned that another infection wave, both in The Bahamas and globally, combined with a harsh lockdown response and other measures, could cut 2020-2021 full-year revenues 33 percent below forecast.

"A more moderate downside scenario envisaged the continuation of the temporary, intermittent and less restrictive containment measures as resorted to over the month of October until April 2021," the report said. "This scenario could produce potential revenue losses in excess of 22 percent of current projected levels."