The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government may have no choice but to respond to the coronavirus pandemic with "painful spending cuts" due to its lack of fiscal "headroom", a prominent businessman warned yesterday.

Sir Franklyn Wilson, pictured, the Arawak Homes and Sunshine Holdings chairman, told Tribune Business that the Minnis administration needed to "look carefully" at which programmes can be slashed given that room for further borrowing was already limited by Hurricane Dorian's massive reconstruction bill.

Pointing out that the 2020 hurricane season is just months away, Sir Franklyn said The Bahamas could not afford to use all its remaining fiscal ammunition on the Covid-19 battle given the risk that another Dorian-type storm may strike the archipelago.

He revealed that all the businesses in which he is invested, such as Arawak Homes and RoyalStar Assurance, are currently engaged in coronavirus-related resiliency and continuity planning to ensure they will still be able to function should "pivotal" staff members become infected and have to become quarantined at home.

"It comes at a time when the Government's financial reserves are stretched because of all they're trying to do with Dorian," Sir Franklyn said of Covid-19, which was yesterday formally declared a pandemic by the World Health Organisation (WHO).

"It would seem prudent for the Government to look carefully at what can be cut. I agree with the Prime Minister's message: 'Don't panic', but in a rationale way we have to accept we do not have as much headroom as we had at any time in our history.

"We don't have as much headroom. We have to look carefully at what government programmes can be cut, what can be done differently, and what can be saved. It may be painful, but this is what is required."

Dorian's impact on the country's short and medium-term finances, which has placed fiscal consolidation firmly on the backburner for the time being, shows that a 2019-2020 deficit equivalent to 5.3 percent of gross domestic product (GDP) - some $677.5m - will drive the Government's direct debt beyond the $8.205bn mark by end-June 2020.

The direct debt-to-GDP ratio will increase by more than seven percentage points compared to initial projections, rising from 57.3 percent to 64.4 percent by the time the fiscal year closes. This ratio is forecast to peak at 66.6 percent at the end of the 2020-2021 fiscal year, and will only have come down slightly to 65.9 percent some two years later.

The Government's revised budgetary projections show more than $1.7bn being added to its direct debt over the four years from end-June 2019 to the close of the 2022-2023 fiscal year, taking it to $9.243bn.

If roughly $700m of contingent liabilities guaranteed on behalf of loss-making state-owned enterprises are thrown in, together with potentially at least $1.5bn in unfunded civil service pension liabilities, then the true scale of The Bahamas' debt is placed nearer $11.5bn.

And this is all before any economic fall-out related to the coronavirus is factored in. The Bahamas' tourism-dependent economy, and its highly open, vulnerable nature, mean the country was already exposed to the virus-related slowdown in global travel even prior to Donald Trump's announcement last night that the US is closing its borders to all flights from Europe - bar the UK - for 30 days with effect from Friday.

Sir Franklyn said yesterday that The Bahamas and entire world were in "uncharted territory" given that the pandemic's extent and spread were impossible to predict, adding that all needed to pray for human life and financial well-being.

"On the fiscal side it seems to be prudent to take a position as to what can be cut," he reiterated. "Let's face it. We're not going to get the revenues we expected, and the expenditure will definitely go up. Nobody contemplated months ago that we would be spending money on test kits for coronavirus test kits or for quarantine tents. You know expenditure's going to go up.

"Your choices are to either cut or borrow. I suggest we be very careful in trying to get through this with more and more borrowing. Whatever headroom we have, we have to leave some in case we face a hurricane. In two to three months we have the start of hurricane season.

"Whatever headroom we have today, we cannot use all of it to deal with the coronavirus. Let's look very carefully at what can be cut before we go the route of borrowing again." The Government is already borrowing a net $508m to kickstart Hurricane Dorian reconstruction, from which it has already fully drawn down on a $190m syndicated loan put together by Bahamian commercial banks.

"In the organisations I'm associated with we're looking at what happens if people have to stay home," Sir Franklyn added. "If one employee cannot come to work because of infection, is there someone who can keep things going so that the organisation doesn't collapse?

"We're using this time to increase resilience in each business, and that's another way of saying you're incurring more costs. That's the prudent thing to do. You've got to be building resilience. If a key employee cannot come to work because of infection, what do you do."

Sir Franklyn said global stock market turbulence was "a barometer" of the coronavirus's worldwide impact, and revealed that himself and other investors in the Eleuthera-based Jack's Bay project "are worried quite a bit" because the resulting loss of wealth means there will be less demand for real estate.

"That can't be a good thing for us," he added. "It comes at a time when people are getting insurance settlements from Hurricane Dorian, and they will be asking: 'Do I leave the money at the bank?' There are a lot of variables."