The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet minister yesterday admitted that The Bahamas’ near-$10bn national debt is “the elephant in the room” that can potentially wreck this nation’s post-COVID economic recovery.

Kwasi Thompson, minister of state for finance, told a post-budget press conference that the government will unveil its strategy for managing its debt once the Public Debt Management Act comes into effect when the 2021-2022 fiscal year starts on July 1.

He argued that the budget “strikes a necessary balance” between economic growth and fiscal austerity, even though the national debt is forecast to continue rising to hit $10.386bn by end-June 2022, with further increases taking it to $10.755bn by June 2024 as the government continues to run annual fiscal deficits.

“The elephant in the room is the debt level,” Mr Thompson conceded. “Commentators have pointed out that the current fiscal year, and the one to come, have elevated borrowing by some $2bn. As the Prime Minister said yesterday, in this administration we do not gloss over this fact.

“The $1.3bn projected deficit this current fiscal year, and the $951m deficit projected for the 2021-2022 fiscal year, reflect the extreme economic crisis caused by Dorian and the pandemic, and our response to these crises. This is what has caused us to postpone - only temporarily - the path to fiscal consolidation and balanced budgets that we were pursuing with great success.”

Acknowledging the ongoing debate over the Government’s fiscal and economic policies, Mr Thompson added: “Some will say take care of the people, take care of the people, now is not the time to focus on debt reduction, and others will say this is unsustainable and we must stop the spending and tax breaks or even raise taxes to reduce the debt level. This budget strikes a necessary balance.”

Turning to the Debt Management Act, Mr Thompson said: “That will require a unit to be formed to increase capacity and for the debt management strategy be published. In addition, we will remain focused on meeting the targets in our fiscal strategy to reduce the deficit to acceptable levels with fiscal discipline, sinking funds and economic policies that accelerate growth.”

He gave no indication of the details that will be included in the debt management strategy. However Marlon Johnson, the Ministry of Finance’s acting financial secretary, yesterday said the Government plans to place up to $775m into so-called “sinking funds” that will be used to pay-off specific debt issues as they mature.

No contributions were made to these so-called sinking funds this fiscal year, though, due to COVID-19’s impact on the Government’s finances. Mr Johnson said the ministry will also seek to access lending facilities provided by multilateral financial institutions in bid to obtain lower interest rates, and more favourable terms and payback periods, while converting variable rate issues to fixed.

He added, though, that while the near-$10bn national debt and elevated annual fiscal deficits were “a cause for concern but not a reason for alarm” because they represented the “temporary and transitory” effects of COVID-19 and Hurricane Dorian rather than any deep-rooted structural problems with the Government’s finances.

Mr Johnson justified this on the basis that the Government’s annual fiscal deficit has already started to drop from the COVID crisis peak of $1.327bn this fiscal year to the projected $951.8m in 2021-2022, adding that it would have remained the same or increased if there any structural woes afoot.

Mr Thompson, meanwhile, conceding that the Government had initially expected its unemployment benefit assistance to be required for just three to four months, added that it will be extended until September 2021 after which anyone still needing support will be switched to the Department of Social Services.

Mr Johnson said the latter agency had seen a $20m “bump up” in its Budget allocation to enable it to cope, taking its social assistance benefits from $42.487m in the current Budget year to $63.036m in 2021-2022.