The Tribune

• Ex-GBPA attorney: Sell-off loss-making SOEs

• Says pain now as voters have ‘short memories’

• PM: ‘We’re not elected to tinker at the edges’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An ex-Grand Bahama Port Authority (GBPA) counsel has urged the Davis administration to take all “nasty” decisions, such as selling-off loss-making state-owned enterprises (SOEs), during its first two years in office.

Carey Leonard told Tribune Business this is critical to both The Bahamas’ future and the administration’s prospects of securing re-election given that many voters “have short memories” and will forgive early pain if the country’s economic fortunes have turned around.

“Whoever came in would have to make very difficult decisions,” the now-Callenders & Company attorney explained. “This administration will have to sell-off the money-losing corporations, such as ZNS and Bahamasair. There’s not going to be anything to sell quite frankly.

“What does Bahamasair have other than debt? They have some aircraft which are probably worth more if they are written-off and they get the insurance claim. And you have the situation with ZNS. Who needs ZNS? You have radio stations and TV stations all over the place. It has no value, and you save tens of millions of dollars a year by not operating them any more.”

Bahamasair’s subsidy quadrupled to over $76m, four times’ its original 2020-2021 Budget allocation of $19m, after COVID-19 left it grounded for much of that period and, when it could operate, with much-reduced passenger load factors. The national flag carrier has cost Bahamian taxpayers well over half a billion dollars to keep in the air since it was founded in the early 1970s just after independence.

Over-staffed, the airline has often been used by successive governments as an employment agency for family, friends, lovers, political supporters and constituents. However, others argue that Bahamasair was never intended to be profitable but, instead, serve as a transportation lifeline for remote Family Island routes that would never be served by private carriers fearful of incurring a loss.

Meanwhile, ZNS or the Broadcasting Corporation of The Bahamas (BCB), is in line for a $7m subsidy in the 2021-2022 fiscal year having received a similar amount during the prior year. State-owned enterprises (SOEs) in total will receive almost $426m collectively in taxpayer subsidies this fiscal year, a sum equivalent to just under 19 percent of $2.445bn in projected revenues.

The fear of job cuts impacting future election votes has always deterred prior governments from cutting SOE workforces too deeply in the past, but Mr Leonard said at least 25-30 percent of Bahamasair’s workforce would find jobs with private sector airlines while others will use their redundancy packages to become entrepreneurs and self-employed via their own businesses.

Arguing that the Davis administration will also have to implement some form of corporate income tax, he told Tribune Business: “They need to deal with this in the first 12 months. This is because I think the country has borrowed as much as it can before the IMF (International Monetary Fund) gets involved, and we certainly don’t want to be in the company of Greece.

“Youth unemployment there skyrocketed, and the IMF made life there miserable and caused a lot of pain. We need to avoid their pain. These sorts of things need to be dealt with. Deal with the nasty things first, and down the road in four to five years it will look a lot more healthy. People have short memories.”

Besides the high possibility of new and/or increased taxes, coupled with spending cuts, as austerity measures to tackle The Bahamas’ $10.356bn debt burden and narrow the projected $951m fiscal deficit, other painful reforms - such as those needed to save the National Insurance Board (NIB) and tackle $2bn in unfunded public pension liabilities - will have to be considered by the new administration.

Various actuaries have projected that NIB’s $1.6bn reserve fund will be exhausted by 2031 without reforms that are likely to have increased in urgency due to the $100m-plus COVID payouts. The Inter-American Development Bank (IDB) said in 2018 that NIB contribution rates must more than double to over 20 percent to prevent a long-term Bahamian pension crisis.

It projected that the Government’s total pension liabilities - including those owed to the civil service and public corporation workers - will ultimately grow to 160 percent of GDP, and eliminating this deficit will require NIB contribution rates to rise from the present 9.8 percent to 20.3 percent.

“Beyond the medium term, pension liabilities for which the Government is directly responsible - including social security commitments, pensions and public entity pensions - amount to 160 percent of GDP and are underfunded,” the IDB said. “Fully funding these pensions would require increasing the social security payroll tax from 9.8 percent to 20.3 per cent - a 107 per cent increase.”

NIB contributions, which take the form of a payroll tax, are currently split 3.9 percent/5.9 percent between employee and employer, respectively. Should the IDB’s forecast prove accurate, The Bahamas’ 200,000-plus workforce will all take a hit from reduced “take home pay” and suffer a loss of disposable income, leading to reduced living standards.

The Prime Minister yesterday pledged to take swift and direct action to counter The Bahamas’ multiple ongoing crises over the economy and the Government’s fiscal health, as well as the public healthcare system that is “collapsing under the weight of COVID-19”.

“I want to be clear,” said Philip Davis QC. “We’re not here to tinker at the edges of these problems. We are here to meet them head on.” He added: “We take office not facing one crisis but several. The severity of the fiscal crisis cannot be over-stated....”

Pointing out that these woes, together with the COVID-19 pandemic, were “present in the lives of Bahamian families across the country”, he added: “Many thousands of Bahamians are out of work and cannot pay their bills.”

Pledging to work with international investors to “increase faith and confidence in our economy”, Mr Davis added that the portfolio handed to Alfred Sears QC, minister of works and utilities, represented the first time that all government agencies dealing with The Bahamas’ physical infrastructure had been brought together under one roof.

In what appeared to be a shot at both former deputy prime minister, Desmond Bannister, and ex-Water & Sewerage Corporation executive chairman, Adrian Gibson, the Prime Minister said: “We are deeply troubled by the fact agencies such as Bahamas Power & Light (BPL) and Water & Sewerage have become more concerned with the lack of transparency and accountability in contracts rather than delivering high quality service.”

Asserting that Mr Sears will resolve these woes, Mr Davis added that Mr Halkitis will “play an important role in helping to stabilise the country’s finances” while overseeing financial services and trade, as well as the Government’s ongoing digitisation efforts and improving the ease of doing business.

“A lot of people are suffering and there is a lot of work to do,” the Prime Minister added.