The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government must transform some in the “bloated” civil service from “burners to earners” and generate annual 5 percent GDP growth to return The Bahamas to ‘investment grade’ status within three years.

Robert Myers, a former Bahamas Chamber of Commerce and Employers Confederation (BCCEC) chairman, yesterday told Tribune Business that the Prime Minister’s ambitions to escape ‘junk’ status with both Moody’s and Standard & Poor’s (S&P) in this timeframe is “achievable” if this nation can get movement “in both directions”.

Reducing the public service’s size, and switching those impacted to private sector employment, would result in these persons generating tax revenues as opposed to these monies being spent on them - what Mr Myers describes as “from burners to earners”. And, to pull-off such a switch without causing economic hardship and dislocation, he reiterated that The Bahamas must break-out of its historical ‘low growth’ cycle.

Speaking after Prime Minister Philip Davis KC delivered the mid-year Budget in the House of Assembly, he told this newspaper that consistent annual 5 percent growth was essential to not only absorb those impacted but would increase tax-generating economic activity. To achieve this much-higher growth rate, Mr Myers renewed his and others’ calls for a renewed focus on improving the ease of doing business.

Mr Davis yesterday disclosed that the Government has also hired a third credit rating agency, Fitch, to assess The Bahamas’ creditworthiness, fiscal position and economic prospect as part of the strategy to restore this nation to ‘investment grade’ status.

And, as part of proving The Bahamas can still access the international bond and credit markets under “normal conditions” without the support of multilateral agency debt guarantees and those from others, the Government tabled a resolution seeking the House of Assembly’s permission to borrow $300m in foreign currency to finance infrastructure projects.

The proceeds from such borrowings, which could come by way of bonds or other debt securities, or more conventional bank loans, would go into the National Investment Fund. “This administration announces an important new objective: Securing an ‘investment grade’ credit rating for The Bahamas within the next three years,” Mr Davis said yesterday.

“To support this goal, we have engaged Fitch Ratings as a third credit rating agency to assess our financial standing alongside Moody’s and S&P. Achieving an ‘investment grade’ rating requires a minimum of ‘Baa3’ from Moody’s and ‘BBB-’ from both S&P and Fitch.

“Reaching this milestone would affirm The Bahamas’ strong creditworthiness and low investment risk, reinforcing our commitment to sound financial management. We intend to implement the necessary reforms to make this vision a reality.” This will involve much work on both the Government and wider Bahamian economy’s part.

Tribune Business research shows The Bahamas is currently rated as ‘B1’ by Moody’s, needs to jump four rating steps to escape its present ‘junk’ or non-investment grade status. At this level, Moody’s considers The Bahamas as “speculative” and “subject to higher credit risk”.

As for S&P, The Bahamas is at ‘B+’ - still two grades away from ‘investment grade’ status. That rating agency currently views The Bahamas as “more vulnerable to adverse business, financial and economic conditions, but currently has the capacity to meet financial commitments”. Both rating agencies, though, have The Bahamas on a ‘stable’ outlook, meaning no further downgrade is expected in the next six to 12 months.

Restoring The Bahamas’ to ‘investment grade’ status would signal that the country’s creditworthiness and ability to repay its obligations has significantly improved, thereby giving the Government better access to international capital markets and the ability to borrow at lower interest rates, reducing the burden on Bahamian taxpayers. It would also boost foreign and Bahamian investor confidence.

Mr Davis yesterday said the Government has already taken “decisive action” to achieve this goal through reforms that have narrowed the annual fiscal deficit; sought to mitigate the impact of climate change; overhaul the country’s energy sector; changes to the Bahamian dollar debt market to enhance “capacity and liquidity”; and moves to diversify the tax base “and align with international best practices”.

Several observers, though, voiced scepticism that the Government can effect the progress required to persuade Moody’s and S&P to lift The Bahamas back to ‘investment grade’ status within the required timeframe despite it being the correct and noble ambition. “Let’s put it like this,” Kwasi Thompson, the Opposition’s finance spokesman, told Tribune Business.

“To even begin to talk about achieving that goal they have to at the very least meet this year’s fiscal targets which they have placed in jeopardy.” Besides hitting the 2024-2025 deficit target of $69.8m, the Government will also likely have to achieve - or come close to - the $448.2m and $457.8m Budget surpluses they are also forecasting for 2025-2026 and 2026-2027.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, said achieving the Prime Minister’s ambition “requires a significant reversal of our fortunes in recent times” from a fiscal perspective. “This is the one where the Bahamian vernacular says ‘mouth can say anything’,” he told this newspaper.

“It’s one of those where that sounds very positive but that requires a significant reversal of our fortunes in recent times on the fiscal front. If you read Moody’s, S&P, even the IMF’s Article IV, it doesn’t matter who we use; they all have the same approach. We’ve not gotten to where the rating agencies have a positive outlook, meaning there’s the possibility of an upgrade in six to 12 months.

“I think that [the Government’s goal] talks to there being a Budget surplus, that talks to post-election. We know there is an election coming up and governments open the purse more than normal. When we make these types of promises, what is the basis for them?”

Mr Myers, though, struck a slightly more positive tone. “That has everything to do with them securing the deficit, being able to refinance the debt and meeting some of the fiscal targets that have been set out,” he told Tribune Business of the ambition to achieve an improved Bahamas credit rating.

“It’s very achievable if we get the inefficiency out of the system. If we can get all the waste and inefficiency out of the Government system then it’s very doable. You don’t have to do much in both directions to get a surplus. It’s not big - 3 percent, 4 percent, 5 percent. If you can cut waste and inefficiency by 5 percent a year, and grow the economy by 5 percent a year, very quickly you end up with a surplus.

“We have got to move people out of the bloated public sector and into the private sector so they become earners and generate taxes instead of burning taxes” via salaries and other government spending. “We have to increase GDP,” Mr Myers added. “If we get people out of the public sector, put them in the private sector and get 5 percent growth, then we are going to - in several years - have a significant change.

“If we do that year-over-year for three or four years, we’re in the money and everything changes. The Government also has more tax revenue. It’s very achievable but we have to have the courage to do it and the people to do it. It’s not monumental; it’s a little but over time. That’s all. Just efficiency and prudence in government expenditure...

“You’re shifting from burners to earners; taking people out of the Government that are burners of tax revenue and moving them to the private sector where they are earners of tax revenue. We move them from burners to earners. They earn the Government money, not spend it.”

As for generating the required economic growth, Mr Myers said The Bahamas must “make the ease of doing business much, much better”. He added: “Right now the ease of doing business is awful. Getting a Business Licence, permits, bank accounts is such a pain in the ass. Anything you have to do in setting up a business is a massive pain.

“NIB, Ministry of Works permits, the BIA, a certificate of occupancy, it just gets more difficult and the left and right hand don’t talk to each other. None of it is codified, none of it is computerised or streamlined. It’s just a mess. That’s where we have to focus the Government’s energy to have efficient ease of doing business and increase GDP. We can fix this thing in three to four years.”