The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Caribbean economist has questioned whether The Bahamas will “run out of runway” before key reforms “bear fruit” sufficiently to avert an economic and fiscal crisis.

Marla Dukharan, formerly Royal Bank of Canada’s (RBC) chief economist for the region, and now head of her own consultancy, told an Organisation for Responsible Governance (ORG) forum that recent tax enforcement measures and other reforms should have been implemented in 2020 and 2021 to give them greater time to take effect.

Praising initiatives such as the newly-created private sector debt advisory committee; re-tooling of the Revenue Enhancement Unit (REU) and tightened tax administration and collection mechanisms, she suggested that soaring global inflation and the resulting cost of living crisis meant these initiatives will now take longer to produce the desired effect.

With inflation and a potential fresh COVID-19 infection wave representing another threat, Ms Dukharan said of The Bahamas: “The question, now you’re facing a third wave of crisis, the $1m question or $1bn question, is: Is your runway going to be long enough for these initiatives, these reforms, you’ve implemented to bear fruit before the crisis, the compounded crisis, really takes effect?

“My view is that you are doing everything right. Unfortunately, perhaps, and you’ve [the Davis administration] only just recently been appointed, but perhaps these initiatives should have been put in place around 2020, 2021. It’s probably going to take a bit longer for these initiatives to bear fruit with the challenges you’re facing as it relates to inflation...... They’re doing the right things. The question is whether the runway is long enough.”

The Bahamas’ national debt has now passed the $10.5bn mark and is heading towards $11bn, and Ms Dukharan told Senator Michael Halkitis, minister of economic affairs, who was also a panellist at the ORG event that she “did not envy you” and other government policymakers in crafting the 2022-2023 Budget that is due to be presented to Parliament on Wednesday.

She acknowledged that The Bahamas had suffered more than most because it had to deal with two crises “back to back”, since the COVID-19 pandemic followed “on the heels of Hurricane Dorian”. And, with surging global inflation worsened by the fall-out from Russia’s Ukraine invasion, Ms Dukharan said these three events are “cascading on and compounding each other to make for very difficult conditions”.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, in picking up on the “runway” theme told the same ORG conference that the Bahamian people, investors and holders of the Government’s debt will give the latter longer to take-off if it can articulate a proper reform strategy that has a series of realistic, attainable goals that can be measured.

While the annual Fiscal Strategy Report represented the first effort “to marry” a long-term plan to the annual Budget, he added that many Bahamians tended to view the latter exercise in terms akin to Ezra Hepburn’s renowned song, Stop the World and Let Me Off, and the line that it was “going round and round”.

Bahamians, Mr Bowe, added, had to acknowledge that the country had suffered “a significant beating” due to the combination of Hurricane Dorian and COVID-19. He said: “We didn’t get where we are with our debt circumstances overnight, and we’re not going to be out of it overnight.”

However, The Bahamas would gain more breathing space to put its fiscal and economic house in order if it produces “a stronger prospectus” detailing the short, medium and long-term strategies and goals it will employ as part of a comprehensive turnaround strategy.

Reiterating that “a goal without a plan is just a wish”, Mr Bowe said that if The Bahamas crafts such a road map “your runway gets extended because there’s greater, if you will, confidence in a strategy that has all the components and recognises that it’s going to take time.

“Persons are more willing to grant a longer runway where they have the confidence that there are interim steps that can be measured, and if they are being achieved that demonstrates the longer-term strategy has greater prospects of success.”

Arguing that the entire Bahamas must view the Budget as its responsibility, and not just the Government’s, the Fidelity chief added: “The Budget has to be communicated in a manner that says we have to invest in what is going to be the future. That may mean sacrifice today and less comfort today for greater security in the future.

“We now need to recognise there are challenges, there are difficulties in front of us, and we cannot boil an ocean. The way you eat an elephant is one bite size at a time.” Arguing that the “mindset” of treating the Budget as a 12-month cycle must be broken, Mr Bowe said this view constantly exposed administrations to criticism that they are not achieving all their objectives.

“I believe that, if we get more deliberate, in terms of saying this is our strategy over 25 years, these are the things we must achieve in years three to five, and these are the things we can achieve in 12 months, then we are not only able to demonstrate that we have a plan to achieve the goals we have set out, but we can implement it and measure it,” he added.

“This is one where I would say to the minister: We are all in this together. Not everybody may appreciate that, and it may not be the easiest political narrative when you do say that, but I think the society is maturing to the point now where we can say that these are the sacrifices we are asking you to make, this is the opportunity we are providing you to ensure you don’t become desolate or do not fall to where you are unable to survive, but we are going to make these sacrifices in the near term in order to provide greater stability.”

Mr Halkitis, setting out the broad objectives for this week’s Budget, having pledged that there will be no new or increased taxes, said: “We must be aware of our fiscal balance and the need to move back towards fiscal sustainability. As people would say, getting our financial house in order by pursuing the reduction in deficit and reduction in the amount of new debt that you have to add to your to your debt stock.

“I believe that in any Budget, we must be realistic. We understand that we have both local and international observers and stakeholders watching, so what we produce must be realistic, it must be attainable. I also believe, though, that it must inspire confidence and optimism on the year ahead for both businesses and the individuals. They must be able to look at a Budget and be inspired that this year will be better than next.”

He foreshadowed a modest increase in social spending for the upcoming 2022-2023 fiscal year, in a bid to ease the cost of living crisis, but provided no details. Mr Halkitis said: “Our objective in this Budget is to be able to promote growth. Obviously, we are looking to reduce the fiscal deficit and by that reduce the amount of new debt that we have to add to the debt stock.

“We’ve talked a lot about ease of doing business and I believe that, in the short-term, the key to economic diversification is to deepen the linkages with the tourism sector, diversify geographically to the islands and make sure that our Family Island economies are strengthened.

“In doing that, develop and strengthen our revenue collection system to make sure that the taxation is equitable so people are charged according to the means and their activity. and the ability to pay, so that it’s predictable both for the taxpayer and for the Government.”