The Tribune

Based on reports to-date, The Bahamas’ economic recovery, performance and fiscal consolidation is trending well. While largely driven by the post-COVID recovery, the current administration is to be commended for marshalling the improvement. It appears to be getting a number of things right, especially in the tourism and investment portfolio led by deputy prime minister, Chester Cooper. Recently-announced initiatives such as the $15m ‘golden yolk’ egg production initiative should create support from other sectors, especially agriculture. However, some may be time sensitive and are likely to face challenges once global supply chains fully readjust. The sense, though, is that there is a clear growth mindset that needs to be baked by strategic intent.

Tourism remains the goose laying the valuable eggs. What is fundamental about its performance is the ability to positively impact market sentiment, drive connected economic clusters and, given that it is the mainstay of the economy, influence investors’ outlook. I continue to take the view that there are other important areas which need focus. However, the announced initiatives and the performance to-date augurs well for meeting or even surpassing targeted outcomes for this fiscal year, as long as the present trajectory holds true. We must adopt an approach of positive caution. So as not to become over confident, we must remain appreciative of the fact there is still much economic work to do.

The Half-Way mark

The mid-year Budget is now firmly behind us. The outcome has been generally positive. Those who follow such proceedings know there was some drama around the reported size of the fiscal deficit for the six months to end- December 2022. The Prime Minister, demonstrating sober leadership in subsequently clearing up any misunderstanding, corrected the initial deficit figure when he led-off the House of Assembly debate. He admitted he had misspoken based on incorrect information included in his mid-year Budget speech. This shows the importance of the Government getting it right, being on the right track and producing the right results. The margins for error are very small. Even the slightest whiff of missed fiscal targets will attract attention and robust discussion.

The current administration is focused on transforming long-running fiscal deficits, incurred in virtually every years since Independence, into a surplus within three years. Based purely on the current reported performance, and the tourism industry’s rebound, such an outcomes appears achievable. Given The Bahamas’ experience over the past three years, and having within that time had cause to moderate the future outlook, it is reasonable that developments at this stage will take on some sense of celebration. It is also reasonable, in my view, that due regard should be given to those who have been working in managing this recovery and continue to so do. The upside is generally positive.

On balance, though, this upside does not represent the full story. Economically, The Bahamas is in an interesting place. The last five years has resulted in a fundamental shift in fiscal fortunes, especially an accumulation of national debt which at one point reached as high as 104 percent of gross domestic product (GDP). While not necessarily a popular sentiment, the Government is faced with a situation where the the country’s financial resilience is much less than desirable, and the most critical need and policy outcome is an absolute reduction in the $11.036bn central government debt. Outside of austerity, the only means of achieving this reduction is to grow the economy. This is one reason the fiscal targets set by the Government are so important. In my view, they represent an honest acceptance of the need for growth. They provide a window into understanding how little flexibility and room for manoevere the Government has, and the gravity of the implications should we fail to get them right. Support, especially from the private sector, for the fiscal targets is fundamental, and the terms of engagement must become very clear, very fast). The Government has little to no ability to grow the economy by itself.

Policy is not just numbers

In his recent mid-year Budget presentation, Prime Minister Philip Davis KC said: “On several occasions in this House, I have observed that national budgets reflect the Government’s priorities and choices. I do so because I want the Bahamian people to understand that the numbers in the Budget are not just an accounting exercise, not a simple case of balancing the books.” This very important statement is the prism through which all reasoned assessment should take place. The fiscal targets detailed in the last Budget, and reiterated in the mid-year debate, represent the Government’s decided policy path. Accurate assessment should therefore should focus on the ‘why’, and every pronouncement should be viewed against this backdrop.

The current fiscal space is razor thin. Tax revenue for the Government is fundamental, and the objectives come with restrictions on how policy can be executed. The Prime Minister said: “We must be fiscally prudent and responsible, but we can also be compassionate and morally responsible.” Fiscal prudence and responsibility at this time demands growth in revenue. Compassion and moral responsibility demands protecting consumers and taxpayers from increased costs as best as possible while creating opportunities. Against the backdrop of positive performance, and a recognition of the need to grow the economy, there is also the always looming issue that the room for adjustments is very limited. Paying special attention to the country’s unfolding economic developments is essential, and its management should not be treated abstractly.

The world is watching

An example is the recent report from Santander, published on March 10, 2023. It carried the caption: “Bahamas – strong tourism”. The next deck then reads: “Revenues are robust but spending needs to slow.” The report goes on to state in part: “The strong recovery in tourism remains the backbone for economic growth and fiscal consolidation…the departure tax through the first half of fiscal year 2022-2023 is running at 74 percent of the Budget…. However, the resurgence of high spending needs to decelerate in the second half of fiscal year 2022-2023 to comply with the annual Budget deficit and to remain on the trajectory to meet a fiscal surplus in fiscal year 2024- 2025.” While The Bahamas is doing well on the revenue side, its overall financial state has not yet matured to a point where adjustments are easily made.

There are cautionary notes to be taken, and this makes the argument for shunning abstract analyses and taking the Prime Minister’s statements seriously. The pronouncements are not simply a paper exercise or balancing a Budget. Having been set, they are now targets which create clear expectations in both the local and international markets. They are benchmarks against which performance will be judged and investment decisions taken. I would recommend policymakers on all sides take a careful study of the Santander report. In my view there are many positives to take away, but also an indication of how the outside world might be viewing The Bahamas.

This report carries general support for the Government’s policy positions - clear recognition of the performance and depth of fiscal recovery, an honest assessment of the path to fiscal surplus in 2024- 2025; that The Bahamas is unlikely to relapse into a crisis and should be more resilient against a downturn in the US economy. However, it warns that “the current pace of spending isn’t sustainable and there isn’t much flexibility against any shocks or budget seasonality”, together with shifting its recommendation on investing in The Bahamas debt, on a risk reward basis, to neutral.

This latter point demands careful study. The lower yields on its outstanding external foreign currency debt are great for The Bahamas and hold implications for borrowing costs. Again, credit must go to the administration for the steps taken to achieve this. However, we should not lose sight of Santander’s view of the country’s risk profile, and that The Bahamas’s debt is not as attractive to the investment market on a risk/reward basis. An appreciation of the implications will no doubt inform policy deliberations.

Linking the forgoing discussion to the Fiscal Strategy Report (FSR) is critically important. Having regard to the Prime Minister’s admonishment, the numbers are indicative of hardening policy positions. It is much easier to isolate performance in a Budget presentation. Therefore, taking into account the entirety of the Fiscal Strategy Report provides a basis for deeper understanding in assessing where we are and what it might take to maintain the current momentum, together with any implications of not achieving these planned goals. This will be discussed in my next article........

• NB: Hubert Edwards is the principal of Next Level Solutions (NLS), a management consultancy firm. He can be reached at info@nlsolustionsbahamas.com. He specialises in governance, risk and compliance (GRC), accounting and finance. NLS provides services in the areas of enterprise risk management, internal audit and policy and procedures development, regulatory consulting, anti-money laundering, accounting and strategic planning. Hubert also chairs the Organisation for Responsible Governance’s (ORG) Economic Development Committee. This and other articles are available at www.nlsolutionsbahamas.com.