The Tribune

• Statistics shows debt equals economy output

• Economy shrinks over $1.64bn in real terms

• Inability to grow ‘comes back to haunt us’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must rapidly “convert tax burners to earners” following official confirmation that its direct national debt is now almost the same size as the economy, a governance reformer has warned.

Robert Myers, the Organisation for Responsible Governance’s (ORG) principal, told Tribune Business that converting loss-making state-owned enterprises (SOEs) and unproductive public sector workers into profitable, productive contributors was imperative after COVID-19 slashed this nation’s economic output by $1.641bn in real terms in 2020.

The government’s Department of Statistics, in data released on Friday, confirmed - to no one’s great surprise - that The Bahamas’ gross domestic product (GDP) contracted by 14.5 percent to $9.665bn last year after the tourism industry was shut down for much of 2020 while the rest of the economy was also restricted by COVID-related lockdowns and associated measures.

When measured in nominal terms, which includes inflation’s impact on price levels, the economic contraction was even greater at 24.7 percent or $3.256bn. This produced a total Bahamian economic output of $9.908bn in nominal terms, the lowest GDP level for at least nine years, which showed that around a decade of economic growth has been lost to COVID-19.

The Department of Statistics’ data, when presented alongside the government’s $9.503bn direct debt as disclosed in its recent nine-month “fiscal snapshot” to end-March 2021, thus confirms that the sums owed by this nation to both local and international creditors almost match the economy’s size.

This means that The Bahamas’ debt-to-GDP ratio, a key indicator of the country’s indebtedness and ability to service its liabilities, stands at 95.9 percent and 98.3 percent in nominal and real terms, respectively.

The data further highlights the extent of the economic devastation inflicted by COVID-19 just one day before the prime minister unveils the government’s 2021-2022 budget in the House of Assembly. Given that the $9.503bn figure includes just the Government’s direct debt, and not contingent liabilities such as debt guaranteed on behalf of state-owned agencies, the total national debt likely exceeds GDP.

Marlon Johnson, the Ministry of Finance’s acting financial secretary, last night downplayed the debt and debt-to-GDP ratios stemming from the Department of Statistics report on the basis that economic output continues to improve since the tourism industry and others reopened in late 2020.

Describing the 2020 data as “transitory” and representing a specific point in time, he told Tribune Business: “The Ministry isn’t particularly concerned about the debt ratio. That represents where the economy was when there was a substantial contraction due to COVID-19. It’s a transitory number. The size of the economy has rebounded because it has started to re-open.

“The size of the economy has caught up by some measure with the contraction. It’s no cause for concern. It’s not a static ratio. It’s not set permanently as an indicator of the state of the economy.” However, the Government’s debt has been increasing at a much faster rate than the economy’s post-COVID rebound.

Chester Cooper, the Opposition’s deputy leader and finance spokesman, also picked up on the implications of the GDP data for The Bahamas’ national debt and attendant ratios. “Using the numbers released for analysis shows that we are in a frightening place,” he said.

“With $9.5bn in direct debt at the nine-month mark, according to the fiscal snapshot, we are certain to see a forecast debt-to-GDP ratio of well over 100 percent for this fiscal year when the Budget communication is delivered. We note that the approved forecast for the entire year was $9.5bn.”

The latter figure refers to the projected national debt at end-June 2021, which is when the current fiscal year closes, with Mr Cooper suggesting the timing of the Department of Statistics’ GDP data release was designed to “dull the pain for the Bahamian people” ahead of potential austerity measures - including new and/or increased taxes - that are likely to be unveiled in the Budget.

Mr Myers, though, argued that the twin blows of Hurricane Dorian and COVID-19 have been worsened by “poor leadership” over the last 40 years that has failed to execute a coherent economic growth strategy for The Bahamas.

Asserting that this has “come back to haunt us”, he added that successive administrations have instead expanded the size of the Government and public sector to resolve the country’s employment issues due to an inability to facilitate private sector expansion.

“I’ll tell you something else I’ve told people in politics,” Mr Myers told Tribune Business. “You are going to have to go through some austerity. You are going to have to convert the burners to earners. Those contributing taxes are earners, and those burning up and consuming taxes are the burners. Government, SOEs are the burners.

“We’ve got to move the burners to earners. We’ve got to substantially grow the economy by 7-8 percent per annum, and convert those burners to earners. If you take 5 percent of the burners and move them to earners, not only are you going to increase revenues but you will reduce expenditure. It’s a double benefit to the economy.”

Such “burners” include the likes of Bahamasair, the Water & Sewerage Corporation, Airport Authority and Broadcasting Corporation of The Bahamas, all of which consumer multi-million dollar taxpayer subsidies. The largest such consumer, of what is a $420m collective annual subsidy, is the Public Hospitals Authority (PHA).

Besides the SOEs, Mr Myers argued that The Bahamas also needed to progressively reduce a civil service that a recent Inter-American Development Bank (IDB) report said was 40 percent over-staffed by transferring excess workers to a growing private sector.

“Moving people to the private sector where they become earners decreases expenditure, increases revenue and increases GDP,” he said. “The 40 percent overweight in the public sector, that are unproductive in the public sector, if they become productive in the private sector that’s a huge win for the Government, the country and GDP.

“The problem is we haven’t had an administration in the last 40 years that has really focused on that. They’ve not had a growth plan that’s really worked. Their inability to create growth in the private sector has caused them to absorb more people into the public sector to keep unemployment down. That, my friend, has come back to haunt us.

“That is why the Government is over-sized. We’ve not had good leadership and a strong GDP growth plan that has been executed well. If we don’t get that, and keep on the same path we’ve been on for 40 years, we will fail and we won’t be the first.”

The Department of Statistics, in its report, used two measurements to assess Bahamian GDP in 2020. The first, known as the “production approach”, and which measures gross value added across all industries, found that financial services/insurance and real estate were the two sectors least impacted by COVID-19.

Financial services and insurance actually saw an increase in their gross value added contribution to the Bahamian economy in 2020, which rose from $1.058bn the prior year to $1.17bn. Real estate, meanwhile, saw only a slight decline from $1.678bn in 2019 to $1.649bn last year.

Tourism and related services, not surprisingly, suffered the greatest impact. Accommodation and food services “contracted by $820m (71 percent) amid the sudden stop in tourism activity, due to travel restrictions and border closures”, falling from $1.149bn in 2019 to $328.3m.

Transportation and storage’s contribution to GDP declined by 70 percent or $316m year-over-year, while the wholesale/retail trade and auto vehicle repairs were lower by $176.8m or 12 percent while administrative and support services were off by $115m or 43 percent.

Using the “expenditure approach” to measure economic output, the Department of Statistics’ preliminary figures showed a $1.8bn or 44 percent fall in The Bahamas’ exports of goods and services last year to $2.273bn due to the drop-off in tourism business.

Imports also contracted by $2.4bn, the decline matching that of exports in percentage terms, due to lower levels of economic activity. Total imports fell to just over $3bn.

“Household consumption contracted by $309m (4 percent), a direct impact of the increase in unemployment and reduced disposable income. Government’s increase in social assistance supplemented households’ loss of income and therefore minimised the reduction in this sector,” the Department of Statistics said.

“General government consumption declined by $313m (17 percent), associated with a drop in purchases of goods and services. This was a direct result of the closure of a large percent of Government offices in an effort to curb the spread of the pandemic.

“Gross fixed capital formation decreased by $1.1bn (36 percent), which was broadly based across all components—although led by the buildings and infrastructure portion which experienced a reduction of 37 percent or $839m.”