The Tribune

With the government’s 2021-2022 budget due to be unveiled tomorrow, Hubert Edwards in the first of a three-part series examines how the pandemic brought us to this point.

The gestation period for a human is nine months. In the life of a mother, this can seems like forever. In the case of a country, that same time is but a blip. However, in the midst of a pandemic and global financial crisis, what happens can last for a lifetime. Generally, birth brings much happiness. The happiest person is likely the mother, the vessel through which the child arrives, full of potential and possibilities, and ready for growth and significant achievements. Only a mother can truly appreciate the process of birth, an exercise of nurturing characterised by discomfort and struggle, with near unbearable pain followed swiftly by joy. With The Bahamas more than ten months into its fiscal year, there is an important perspective to be drawn from this phenomenon of childbirth. This can be summed up by asking what the nation will birth at the end of this crisis. Like a pregnancy, the struggle and discomforts are real. Like a pregnancy, there are upheavals and pain to face. However, unlike a successful pregnancy, there are important differences - the full extent of the pain and future joy of success are both optional.

The government has rightfully highlighted the uptick in revenue since the end of 2020, and sought to position this in a very positive light. One can appreciate why the government will seek to do this. There is value in seeking to create an environment that shows signs of progress and improvement. The country and economy are, however, at an interesting point. With the length of the pandemic uncertain and the fiscal fundamentals off-kilter, it is useful to ensure a very balanced approach is taken on how these matters are discussed. The reality is that while there is this moment of improvement, the economy is still challenged. Here is why balance is important. Unemployment is high, and personal productive capacity is being eroded as persons are forced to spend savings. While many companies are still moving forward the ultimate fall-out is still not yet known. Despite the vaccination programme, which is not being taken up as anticipated, there is the present “third wave” of COVID-19 infections and this is potentially complicated by emerging virus variants. Any surge could plunge The Bahamas into a repeat of the 2020 restrictions and, as will be seen later, a potentially precipitous fiscal fall-out that is showing small signs of improvement.

There must be access to more vaccines to cover the entire population, or at least a sufficient portion to secure critical mass. Based on my analysis of publicly available information, The Bahamas is nowhere close to the possibility of herd immunity. To date, the country has secured 87,200 vaccine doses. This translates to a potential coverage of 43,600, not taking into account expirations, which based on the take up rate seems like a high possibility. Based on this, far less than 25 percent of the population will be covered, which is significantly below the levels required for herd immunity. This is further complicated by the level of take-up by citizens and residents. It therefore places The Bahamas in a tenuous position. In my view, “normalisation” will be elusive until such point when a significant proportion of the population has been fully vaccinated. Against this backdrop, the level of uncertainty is at a vicious stage, both for investors and doing business. With this in mind, policymakers must work diligently to find the right tone and balance to ensure they do not underplay the economic crisis while also not overselling the gloom. An understanding and acceptance of the real issues facing The Bahamas, businesses and individuals are important for planning and navigating the way forward.

Nine-month “snapshot”

Analysis of the government’s recently-released nine-month “fiscal snapshot” paints a haunting picture, but not one that is unexpected. The information that was provided, from the perspective of an informed observer, was largely pedestrian in nature. It was a case of nothing happening here, at least nothing beyond what should have been expected. Revenue remains under severe pressure because of the pandemic; expenditure is running parallel to or above “good years”; and the national debt is at record levels. Nothing about this picture should have been unanticipated. The deficit is just below $900m, and is indicative of the possibility of seeing a deficit as large or greater than that projected for the current fiscal year, $1.327bn. Typically, government expenditure runs in the range of $2.5bn. From all indications, the trajectory on expenditure will place it in this region for the current fiscal period.

The reality is that, economically, The Bahamas is struggling and will continue to struggle over the next few years because of what is happening in this moment. Consequently, tomorrow’s Budget will be very telling for the country. It represents a wonderful opportunity for the plans, policy and pivots to be initiated. I fully understand and appreciate the pressure brought on by heightened focus on the upcoming general election. At this moment, it is a time for country. It is a time for nationhood above everything else, and it is a time for the meeting of the minds and the unleashing of the collective Bahamian genius. To do otherwise in the face of overwhelming and compelling signals could lengthen the inevitable period of hurt.

The big question that arises for me is will there be an investment of “a little pain” for the possibility of a future outcome that is in the interest of the greater good, or will the energy of the election remove some of the potential sting, which in my opinion we should take now, from this cycle. I take great care to not make statements that can be seen as political. The reality is that whatever way the cookie crumbles, after a general election, the issues will be the same. The country must take steps to rectify challenges with the economy by fixing structural weakness, securing diversification across the economy and within existing industries, eliminate inefficiencies, improve productivity, break the back of the emerging debt trap, and place The Bahamas on a growth trajectory. Anything less will be suboptimal.

In a generally bad situation, without deliberate action we are often likely to miss existing positives or slivers thereof. The nine-month snapshot was not all gloom, though it remains generally gloomy. The first and most important metric, in my opinion, is the fact that quarter-over-quarter, revenue has shown improvement. This is important. A cursory review will easily show that the first quarter (July to September 2020) of the 2020-2021 fiscal year ended with revenue at a reported low of $300m. The revenue position had improved by the third quarter to $556m. The change represents an 85.3 percent increase, though well below the third quarter performance of the previous fiscal by approximately $100m. This signals a level of economic recovery as the country opens up.

Another important indication from the reported numbers is that despite the deficit widening to $878m, and the fact there will be a need for continued elevated borrowing, the much-heralded possibility of entering an IMF programme is not on the cards. Many would remember the declaration that “within one year The Bahamas will be in an IMF programme”. True, the finances are very challenging. However, with the trajectory of revenue reversing from that “fall off the cliff” scenario suggested around June 2020, that argument continues to lose potency. Back then, I was very clear that I was not in agreement with this position. I believe then, as now, that the range of fiscal options available to the country were by no means exhausted. This has been borne out by two things. First, the Government continues to access the credit market, even though this is at a higher cost, and second, it has yet to trouble the existing tax apparatus. John Rolle, governor of the Central Bank, said that before creditors were harmed the country would levy new (or more) taxes. This is, however, not the end of debt-related issues. Debt will continue to loom large for The Bahamas over the next few years and represents one of the most important economic factors that must be addressed for the country to thrive.

Resilience is a stated objective of the current administration. True resilience is achieved through an effective marriage of the public, private and social sectors. Despite a huge cost, the Government has arguably shown great commitment in supporting the social sector. While there are still notable deficiencies, given limited resources, support for the small business sector, primarily through initiatives managed by the Small Business Development Centre (SBDC), has been commendable. While this has exerted pressure on spending, the take away is that The Bahamas has some level of capacity in this area. Over the course of the pandemic, significant resources have been redirected to social services support in the face of lock-downs and high unemployment. Contrast and compare with other countries in the region, where this kind of support lasted for six months or less. The Bahamas has been able to, with adjustments, provide support for well over one year though a variety of programmes. Here we will not argue the efficacy of the programmes, but simply look at this as a positive to take away.

To be continued..........