Economic and fiscal prudence: Ingraham vs. Christie
By Arinthia S. Komolafe
There is ongoing debate on the leadership attributes of the prime minister and leader of the Free National Movement (FNM), Hubert A. Ingraham, and the leader of the official opposition and Progressive Liberal Party (PLP), Perry G. Christie. Leadership was the dominant theme of the FNM’s 2007 campaign and it is not surprising that the FNM has adopted the same modus operandi for its 2012 campaign.
The general position of the 21st century Bahamian electorate is one that rejects a leadership campaign in favor of a campaign that promotes plans to create jobs, reduce crime, address the immigration debacle and place the country on the path to economic prosperity.
Against this backdrop, it is imperative to state that a leader will be judged by and for successive generations based on his/her ability to, among other things, manage the economy in a manner that balances economic prudence, socio-economic expectations and infrastructural development. A review of the budget communications for fiscal years 2002-2012 and comparative analysis of the stewardship of our economy by the Christie and Ingraham administrations is important as we go into the 2012 general election.
Christie administration (2002–2007)
Upon assuming office in May 2002 following a landslide victory at the polls, the Christie administration was faced with multiple challenges. In the aftermath of two consecutive Ingraham-led terms from 1992-2002, The Bahamas was in recovery mode following a blacklisting by the Financial Action Task Force and the backlash of the 9/11 terrorists attacks in the United States which had weakened our main industries of tourism and financial services.
These realities coupled with a burgeoning national debt in excess of $2.1 billion, a debt-to-GDP ratio of 37 percent and a growing deficit of 3.7 percent, would ultimately limit the Christie administration’s ability to implement many of its proposed policies and programs, least among them National Health Insurance. The administration would proceed to execute austere measures and engineer an aggressive economic policy to improve the economy of the country and maintain deficit levels.
At the onset, the Christie administration recalled a US$125 million loan incurred by the previous Ingraham-led administration that had a four-year term and imposed heavy servicing costs. As a result, a US$200 million bond attracting a lower interest rate and extending the life of the loan was issued.
Over its five-year period in office, the administration borrowed approximately $640 million to meet is annual budget requirements and aid in its revenue shortfall. The administration invested in social programs, such as urban renewal, carried out what is arguably the most ambitious housing program in Bahamian history with the building of more than 1,400 homes and allocated funds to the consistent repatriation of illegal immigrants. Further, the administration chose not to increase taxes, thereby saving Bahamians additional hardship in a depressed economy and implemented austere measures in budget allocations to ministries.
This policy decision as expected, negatively impacted government revenue and curbed expenditure. However, the administration turned the economy around by securing multiple anchor projects for improvements in infrastructure and job opportunities resulting in an increase in foreign direct investments (FDI) of approximately $240 million in 2002 to an excess of $880 million in 2007.
This enabled The Bahamas under the Christie administration to increase external reserves to a record in excess of $690 million from $370 million in 2002. Unemployment figures fell from 9.1 percent in 2002 to 7.9 percent in 2007, accounting for approximately 20,000 jobs created.
Ultimately, the Christie administration was able to achieve social, economic and infrastructural development in challenging times that called for austerity.
Ingraham administration (2007–2012)
The Ingraham administration was greeted with multiple FDIs, a national debt of approximately $2.4 billion, a reduced deficit and a debt-to-GDP ratio of 35 percent when it took office in 2007. In its Manifesto 2007 promise, the administration had committed to deficit reduction and hoped to achieve this feat and reduce the debt-to-GDP ratio to a low of 30 percent by 2012.
Faced with favorable economic conditions and a projected growth rate of 4.5 percent, the Ingraham administration’s first and second budgets were generous. Allocations to most ministries were increased significantly over and above allocations in previous fiscal years. However, The Bahamas’ tourism and financial services industries would become negatively impacted by the global economic downturn.
Over the ensuing fiscal years, the Ingraham administration witnessed a decline in revenues and consequently relied upon the headroom it met when entering office to significantly increase its borrowing and make up for revenue shortfalls. In addition, the administration carried out perhaps the most aggressive and controversial fiscal policy in Bahamian history. Tax increases by the administration adversely impacted lower and middle income earners and Bahamian businesses. Private schools, charitable and College of The Bahamas subsidies were reduced in an already depressed economy.
Confronted with reduced revenue and only remnants of FDIs negotiated by the Christie administration, the administration seemed to pay the price for its “Stop, Review and Cancel” policy for FDI projects left on the table by the Christie administration, which Standard & Poor’s noted affected investor confidence in The Bahamas. The administration would later seek to address its revenue shortfall with the controversial sale of the state-owned telecommunications company, Bahamas Telecommunications Company (BTC) to British firm Cable & Wireless and the reduction of the prime and discount rates lowered the administration’s debt servicing cost.
The challenges faced by the Ingraham administration were great and as such required prudent fiscal and economic planning. Caught off-guard by the global recession and with no real or robust economic policy, the Bahamian economy has suffered a great deal. Unemployment levels have risen to more than 15 percent, foreclosures are at record levels and the government had oversight of more than $100 million in cost overruns for the road improvement project. The national debt has doubled in excess of $4 billion, deficit levels exceed eight percent and the debt-to-GDP ratio exceeds 60 percent (more than the recommended rate of less than 40 percent).
In the final analysis, a review of both administrations’ performance in managing the economy suggests that the Ingraham administration lacked a plan to improve economic conditions in the country as evidenced by its reactionary fiscal policy. The Christie administration, on the other hand, despite being faced with multiple challenges throughout its term charted a course that set The Bahamas on the road to economic recovery.
It is difficult to see how another Ingraham administration would differ from the current one being faced with the same challenge and appearing to wait on a slowly recovering United States economy. It is fair to state that a similar strategy will be deployed. The Christie-led PLP has indicated that it will adopt similar policies (as deployed between 2002 and 2007) to restore economic prosperity to The Bahamas if elected.
The Bahamian people ought to be mindful of the following words of President Thomas Jefferson: “To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude”.
The facts do not lie and we must choose economy and liberty over profusion and servitude. The choice is ours to make.
• Arinthia S. Komolafe is an attorney-at-law. Comments can be directed to: arinthia.komolafe@komolafelaw
Apr 19, 2012