The Tribune

• Gov’t and Opposition accused of ‘ignorance’

• Former wants cake and eat it on growth, deficit

• FNM ‘flinging mud and hoping something sticks’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government and Opposition responses to the International Monetary Fund’s (IMF) report on The Bahamas “would be embarrassing if it wasn’t such a serious matter,” a financial observer has blasted.

Gowon Bowe, who headed the private sector’s Coalition for Responsible Taxation when VAT was implemented, accused both the Davis administration and Free National Movement (FNM) of cherry-picking those sections of the Article IV statement that best fit the respective narratives they are seeking to push while either dismissing, or ignoring, those inconvenient to their causes.

In particular, he told Tribune Business that the Government was attempting to “approbate and reprobate”. While lauding the IMF’s upward revision to The Bahamas’ 2024 economic growth projections, which the latter has increased to 2.3 percent from 1.8 percent, it is at the same time dismissing the credibility of warnings that this year’s fiscal deficit will be nearly three times’ higher than the Government’s own estimates.

As for the Opposition, Mr Bowe said its “continued ignorance is to fling mud and hope something sticks”. He argued that there was nothing to prevent the FNM from accessing the necessary data, and running its own economic and fiscal models, to validate the Government’s projections and come up with its own forecasts, noting that the Coalition had conducted this same exercise in assessing VAT’s impact.

The Fidelity Bank (Bahamas) chief told this newspaper that, in effect, the IMF’s recently-disclosed Article IV report described a Bahamian economy where there has been “no regression but, equally, no significant progress” as this nation continues to grapple with the Hurricane Dorian and COVID-induced expansion of its debt burden plus inflation and the ongoing ‘cost of living’ crisis.

And, while the economy has bounced back and reflated more rapidly than expected in the pandemic’s aftermath, that return to pre-COVID economic output is now complete. And, while the IMF is projecting higher-than-expected GDP growth for 2024, its forecasts show this is only likely to delay the return to long-term average expansion rates by a year, with 2025 pegged at 1.8 percent.

“The commentary around the IMF report, if not such a serious matter, would be embarrassing,” Mr Bowe told Tribune Business. “You cannot approbate and reprobate. You cannot choose the parts of the IMF statement that you agree with and dismiss those you disagree with.

“On the governing side, you cannot say that we agree with you on inflation being contained and low unemployment, but we don’t give any credence to our deficit target being too optimistic. The Government and Opposition both showed ignorance in not speaking to the report in full but approbating and reprobating.” The latter expression means persons cannot both accept and reject the same thing, or have their cake and eat it.

He added that the IMF statement needs to be read and interpreted in its entirety, rather than the Government and Opposition picking over it and merely selecting the best bits to support the views they want to push. The former, especially, is giving Bahamians the contradictory message that they “cannot rely” on the IMF’s deficit forecast but they can do so with the GDP growth projections.

The Davis administration has focused on talking up, and extolling, the IMF’s upward revision to Bahamian economic growth projection as signalling that its policies are bearing fruit. However, it has sought to brush off, downplay and outright dismiss the Fund’s forecast that the 2023-2024 fiscal deficit will be nearly triple the Government’s 0.9 percent of GDP projection by coming in at 2.6 percent.

Should the IMF’s forecast be proven right, 2.6 percent of GDP is equal to a $379m deficit as opposed to the $131.1m that the Government is forecasting. That represents a $248m difference in how much the Government’s spending will likely exceed revenue income and, should this scenario come true, it could create major credibility and trust issues over The Bahamas’ future economic and fiscal forecasts.

Michael Halkitis, minister of economic affairs, last week said the Government is “betting on our ability” to hit its fiscal targets while predicting that the Opposition and other critics will “be wrong again”. He also reiterated that the Davis administration has “met or exceeded all of our projections” when it comes to managing the Government’s financial affairs since taking office in September 2021.

Mr Bowe, though, agreed with Tribune Business that the accuracy of this assertion was open to challenge. “Part of your response is that you have always met or bettered your targets, but two days later you say you missed your deficit target, although you did not miss it by much,” he added.

The Government’s June 2023 monthly fiscal report, released one day after the IMF statement came out, showed a $533m fiscal deficit for the full 2022-2023 Budget year. While this was lower than the original $575.4m, it exceeded the revised $520.6m target that was unveiled in May, albeit the sum involved in the overshoot - just over $13m - is not material in the context of a $3bn Budget.

There were also suggestions from the Government that the country’s debt has reduced, which is also incorrect. This was confirmed by yesterday’s 2023 third quarter review from the Central Bank, which revealed that the national debt had risen by “$404.2m (3.6 percent) on an annual basis to $11.573bn as at end-September 2023” despite a $77m drop in the last three months.

However, it is likely that the Government misspoke in referring to “debt”, and instead meant the debt-to-GDP ratio, which has reduced significantly since peaking at just over 100 percent in mid-2021 thanks to the economy’s post-COVID reflation and rebound to normal output levels.

“Sadly, and don’t take offence to this, but the PR personnel on the Government and Opposition side have been left unchecked and simply left to issue statements to stimulate emotions and not intelligent debate,” Mr Bowe charged. “It would be wholly embarrassing, and one to castigate them for, if it was not so serious because the external world is watching.”

Rather than simply seeking to prove the IMF and others wrong, he argued that The Bahamas instead needs to ensure it produces the economic models it is using so that projections can be “validated and challenged” by observers, as well as having the policies and initiatives in place to justify the deficit and other fiscal estimates.

“What they said in fullness was we don’t see the policies necessary to achieve the recurrent expenditure constraints necessary to hit your targets,” Mr Bowe said of the IMF’s fiscal assessment and projections. “It’s not a matter of proving projections right or wrong. We should be in position with policies or initiatives to be able to do so.

“No one is speaking to the fact, which is telling and reiterated in Fiscal Responsibility Council reports, that we need to produce our models so that they can be validated and challenged. If the IMF has a model presented to them, they can say we see your assumptions and we differ, and we see your estimates and we differ.

“In the absence of a model, they’re left to use the Government’s numbers and run them through their models. We cannot say their numbers are too pessimistic or not, or take into account all factors, unless we’ve given them the model that can be validated and challenged,” he added.

“We have to stop this truly embarrassing ignorance we demonstrate when we ‘approbate and reprobate’. We need to focus on having all these facts in place to do projections on GDP growth, employment and the deficit.”

Calling on all sides of the political divide to “stop over-reacting”, Mr Bowe said that “in a way” the IMF report was positive in that it showed there was “no retrogression but, equally, no significant progress”.

He added: “We have to accept criticisms, especially if they are objective. I don’t see anything in the IMF’s report that is biased. It provides commendation for the good things that have been done, and provides areas for improvement.”