The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading Bahamian banker has warned that taxes will "increase significantly" to pay for the Government's COVID-19 spending, leaving individuals and businesses left with less money "for quite a while".

Gregory Bethel, Fidelity Bank (Bahamas) president, urged Bahamians to plan for grim economic times that lie ahead as he warned that "no organisation, family or individual will be exempt from the price to be paid" for deficit spending that is projected to add more than $2.9bn gross to the national debt over the three-year period that closes on June 30, 2022.

Despite the harsh austerity that awaits, Mr Bethel also urged the Government to provide Bahamians with "immediate hope and confidence" that it and other institutions have their backs in times of need. He warned darkly that unless this happened, the economic and social hardship produced by COVID-19 may cause many Bahamians to "revolt", resulting in social unrest and increased crime.

Writing in Fidelity Bank (Bahamas) just-released 2019 annual report, Mr Bethel sought to prepare Bahamians for the "life-changing challenge" produced by the twin health and economic crises sparked by COVID-19, warning that financial and lifestyle habits must change immediately if medium and long-term prospects are to improve for hundreds of families.

Suggesting that new and increased taxes are an inevitable consequence of COVID-19, he pointed out that this burden will fall on a Bahamian private sector and consumers that fund the Government through generating 80 percent of this nation's economic activity.

"Since we had no tourists visiting the Commonwealth of The Bahamas (The Bahamas) for three months, up to 60,000 Bahamians suffered loss of income. All households had less income. Some had none," Mr Bethel explained in a "message" written before the reimposition of further restrictions that have slowed tourism's July 1 reopening to a trickle at best.

"And because the tourists will not return in the required numbers until the economies of the United States of America and Canada fully recover (not projected until the beginning of 2022), the Government of The Bahamas and the private sector – which funds the Bahamas government – must step in and assist those in need.

"The private sector (businesses and individuals) fund the Bahamas government through taxes, fees and loans. The private sector, which is 80 percent of the Bahamian economy, provided the funds which the Bahamas government spent to help people during and after the global pandemic."

Outlining the near-term fall-out, Mr Bethel added: "This extraordinary social expenditure by the Bahamas government (at the same time experiencing a significant revenue loss) added to the Bahamas government’s deficit and debt. This means that taxes will increase at some point. They will likely increase in a significant way.

"The wealthy, upper-middle income earners, and the profitable businesses will have to pay even more to fund the Bahamas government, including the costs of safety, security, salaries, social assistance, healthcare, education and servicing of debt. So, individuals, organisations and businesses will have less income and money to spend for quite a while."

Urging Bahamians and the private sector to brace for the coming storm, Mr Bethel wrote: "Now is the time to reset or adjust goals, objectives, budgets and future plans. Now is the time to spend only on what is urgent and important, or will generate a positive return in the future.

"No organisation, family or individual is exempt today, nor will they be exempt from the price to be paid during and after the recovery period. We must all strategise and think about the future."

K Peter Turnquest, deputy prime minister, in unveiling the 2020-2021 Budget said the Government had ruled out the imposition of new and/or increased taxes as a means to cover its massive deficit spending for fear that they would further depress an economy in danger of imploding due to the tourism industry shutdown and associated COVID-19 lockdown.

He subsequently voiced optimism that The Bahamas will be able to grow its way out of any post-COVID-19 fiscal woes, and avoid increased taxation over the medium-term, when repeatedly pressed by Tribune Business on the matter.

For the Ministry of Finance's own fiscal projections suggest that the pandemic is pushing The Bahamas into uncharted territory, with the Government's direct debt forecast to reach 82.8 percent of gross domestic product (GDP) by end-June 2021.

That figure, which is forecast to rise further to 85.6 percent come end-June 2022, excludes around $600m in "contingent liabilities" that the Government has guaranteed on behalf of state-owned enterprises such as Bahamas Power & Light (BPL) and unfunded civil service pension liabilities thought to be approaching $2bn.

Even without including those two factors, the Ministry of Finance's own projections show the national debt breaching the $10bn mark in the next 2021-2022 fiscal year, ending 2022-2023 at $10.614bn.

This is due to deficit spending estimated to have totalled $773.7m in 2019-2020, due to a combination of COVID-19 and Hurricane Dorian, and further "red ink" forecast to hit $1.327bn and $813.4m over the present and next fiscal year, respectively.

Mr Bethel, meanwhile, urged The Bahamas to target major markets such as the US, Canada, the UK, China and Europe in a bid to lure tourism and foreign direct investment (FDI) to these shores once COVID-19 is contained.

"The relevant representatives of The Bahamas need to travel abroad to engage ‘key actors’ in each of these continents [and nations], build up contacts and foster key relationships. The Bahamas needs to do all it can to attract tourists and investors while assuring them that The Bahamas is safe and open for business – with quick decision making," he added.

Warning that the Government must convince Bahamians there is a brighter future amid the harsh reality of COVID-19, the Fidelity Bank (Bahamas) president said: "Today, many Bahamians are afraid, frustrated, and irrational. Many people need immediate hope and confidence that institutions like the Bahamas government, the private sector - including banks, churches and charities - really care, understand, and want to help them now and in the months to come.

"If they have no hope and confidence in our institutions, they will revolt and encourage others to join them. Crime will increase. Leaders in The Bahamas need to give them hope and relief, while at the same time providing them information and useful advice (which they may not necessarily want to hear). As a nation, we need to act prudently and pray that God will intervene to enable us to provide quick tests, a cure and a vaccine for COVID-19."