The Tribune

• ‘All systems must be hitting’ to make fiscal goals

• Governance reformer: ‘We need to reach shore’

• Economist’s concern on debt far outpacing GDP

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas is “still playing in a very dangerous space” despite the government’s optimism it will hit its $1.327bn deficit target for 2020-2021, governance reformers warned yesterday.

Matt Aubry, pictured, the Organisation for Responsible Governance’s (ORG) executive director, told Tribune Business that this nation must “focus on straight line swimming if we’re to make it to shore” after it was revealed on Wednesday that the government’s direct debt now exceeds $9.5bn after increasing by $1.3bn in just nine months.

Calling on the government, private sector and wider society to pull together and help drag The Bahamas from its COVID and Dorian-inflicted woe, he added that the country needed “all systems to be hitting” for the Ministry of Finance to hit what is a record all-time high deficit projection.

Besides the government using all tax dollars “effectively and efficiently”, and collecting every cent due to it, Mr Aubry said this needed to be combined with rapid “ease of doing business” improvements and providing the private sector with the necessary freedom to grow the economy, if The Bahamas is to escape the devastation inflicted by the pandemic.

Marlon Johnson, the Ministry of Finance’s acting financial secretary, told this newspaper earlier this week that he was “very, very confident” that the government will hit its full-year fiscal targets even though the deficit for the nine months to end-March was more than triple, or 249.5 percent higher, than prior year comparatives at $878m.

Several sources, speaking on condition of anonymity, said containing the government’s borrowing deficits to a record $1bn-plus figure was not necessarily something to be proud. Mr Aubry, while acknowledging the government’s confidence, warned that COVID-19’s unpredictability means there remain plenty of factors that can knock the public finances off-course before the June 30 year-end.

“Based on their assessment, the indications are they feel comfortable they can achieve it, but to me it requires all systems to be hitting,” he told Tribune Business. “To achieve those numbers there’s got to be a focus on ensuring all the Government’s dollars are being used as effectively and efficiently as possible, and also ensuring every source of revenue is being accessed.

“As the economy gains traction, there are still some great uncertainties. The status of the pandemic in the US, the measures taken to control it here and abroad, and the effects on the economy. Even though we are moving in the right direction, there is no guarantee. Things can happen.”

The ORG executive director pointed out that The Bahamas will enter another hurricane season in less than a month’s time, potentially exposing it to further Dorian-type storms and climate-related risks that could result in hundreds of millions of dollars in unplanned costs and public spending.

“We’re still playing in a very dangerous space,” he added. “The incredible amount of money spent on social assistance is a quite astonishing expenditure, and requires support from all sectors. The Government needs to focus on efficiency and driving in all revenue sources, and the private sector needs to be free to develop the economy and take more people off the unemployment line.

“Improving the ‘ease of doing business’ should be a significant target, and we put that forward as the Economic Recovery Committee. That was a priority for the committee because we know the heavy lifting is going to be on the private sector and it needs every opportunity.

“If we have a shut down again, or take further measures, we will have further reverses that will add another level of pressure that will be difficult to manage.” Much thus rests on the tourism industry and wider economy’s continued slow but steady opening up, and more workers being recalled to work, in combination with COVID-19 infection rates both here and in the US being brought under control.

Mr Aubry said the 30 percent year-over-year decline in government revenues for the nine months to end-March, which represented a $527.4m drop to $1.23bn, was “quite significant” and “quite unprecedented” for the Minnis administration’s income and ability to service its ongoing obligations.

“We’re in quite deep water, and to make it to shore we have to focus on straight-line swimming,” he added, noting that the upcoming general election “adds another layer of uncertainty” to The Bahamas’ post-COVID recovery.

“We all understand the necessity of the increased debt,” Mr Aubry said, “the circumstances of keeping the economy going, to support our unemployed workers and to make sure social assistance programmes are in place. 

“It’s also on top of decades of debt. When you look at evaluating our competitiveness, that level of debt has to be taken into consideration as it relates to potential opportunities for the future.”

Meanwhile Rupert Pinder, a Bahamian economist who lectures at the University of The Bahamas (UoB), told Tribune Business his primary concern is that The Bahamas’ national debt continues to grow at a much faster rate than the country’s gross domestic product (GDP) or economic output.

The Ministry of Finance’s report earlier this week revealed that the Bahamas’ debt-to-GDP ratio had jumped by almost 17 percentage points in nine months, leaping from 66 percent to 82.8 percent on the back of a $1.312bn debt increase - a rise that Mr Pinder argued is simply unsustainable because the economy lacks the means to support it.

With the Bahamian economy failing to hit an annual GDP growth rate of 2 percent since the 2008-2009 recession, Mr Pinder added: “To me there is some concern about the rise in debt, but it’s the relative value as well as the absolute.

“More important, I think, is the rise in debt relative to GDP in an environment where we have had relatively anemic growth dates. A lot of the projected growth for 2021 and 2022 will only take us back to pre-pandemic levels in terms of the adjustment to GDP.

“The concern is the rise in debt relative to GDP because over the last ten years we have had relatively anemic growth rates. The challenge is not so much in debt, but the level of debt as a percentage of overall GDP.”

To bring The Bahamas’ debt-to-GDP ratio down, the latter must be growing at a faster rate than the former to ensure the economy can bear the weight of increased debt servicing costs. The reverse is currently true, and Mr Pinder acknowledged the Government “doesn’t have much flexibility” to alter course in the short-term as the COVID-19 pandemic rages on.