The Government's own projections show its direct debt standing at 50.6 per cent of GDP, or $4.057 billion, as at end-June 2012... ...then increasing to $4.607 billion, or 54.5 per cent of GDP, by the close of the 2012-2013 fiscal year

National Debt To Exceed $5bn By Mid-2013



By NEIL HARTNELL

Tribune Business Editor

THE Bahamas' national debt will breach the $5 billion mark before the end of the upcoming 2012-2013 fiscal year, the Government's Budget projections disclosed yesterday, with the debt-to-gross domestic product (GDP) ratio also surpassing the 60 per cent threshold.

Unveiling what fiscal conservatives would likely describe as 'a horror show', Prime Minister Perry Christie unveiled a projected $550 million GFS deficit for the 2012-2013 fiscal year, a sum equivalent to 6.5 per cent of Bahamian GDP.

Together with the projected $504 million deficit for the 2011-2012 fiscal year, which is set to close on June 30, this means the Government will have to borrow more than $1 billion in just two years to cover both its recurrent and capital deficits.

And the $1.054 billion financing gap does not include debt principal redemption, which is set to total $66 million and $121 million, respectively, for the fiscal years 2011-2012 and 2012-2013. Together, that adds a further $187 million to the fiscal deficits, taking the gap between revenues and spending over the two years to $1.241 billion.

The Government's own projections show its direct debt standing at 50.6 per cent of GDP, or $4.057 billion, as at end-June 2012, then increasing to $4.607 billion, or 54.5 per cent of GDP, by the close of the 2012-2013 fiscal year.

Yet this masks the extent of the overall problem, because it does not factor in the $551 million worth of debt the Government has guaranteed on behalf of state-owned Corporations and agencies.

That sum was equivalent to 7 per cent of GDP at year-end 2011. Placed on top of the Government's direct charge, that takes the Bahamas' total national debt to $4.608 billion, or 57.6 per cent of GDP, at June 30, 2012.

And, when added to the projected $4.607 billion direct charge on government at the end of the 2012-2013 fiscal year, the Bahamas' total national debt will hit $5.158 billion - a sum equivalent to 61.5 per cent of national GDP.

And, if the Government's medium-term Budget projections are correct, GFS deficits of $357 million and $272 million in 2013-2014 and 2014-2015, respectively, will take the direct charge to $5.215 billion at the end of the latter period.

Assuming the $551 million in government guaranteed debt remains relatively unchanged, the total Bahamas' national debt will hit $5.766 billion by June 30, 2015, a sum equivalent to 63.3 per cent of GDP.

That indicates the fiscal position will likely continue to weaken despite the improvement generated by positive GDP and economic growth, and also suggests the Bahamas will hit the $5.5 billion debt mark more than a year earlier than the International Monetary Fund's (IMF) 2016 forecast. It also appears that the Government is again relying on economic growth to keep the debt-to-GDP ratio below the 70 per cent the IMF has classified as a 'danger' threshold.

The toll this will exact on the Government's finances, and its ability to fund spending priorities and areas such as education and health, was brought into sharp relief by the Prime Minister yesterday, when he said debt servicing (interests) and debt principal requirements would collectively total $328 million for the 2012-2013 fiscal year - a sum equivalent to 18 per cent of recurrent spending.

Overall, the Budget was pretty much what observers expected, with Mr Christie, as Minister of Finance, performing a delicate balancing act between conveying a message of fiscal prudence and 'holding the line' on the deficit on one hand, while trying to stimulate the private sector and deliver on pre-election campaign promises with the other.

The main 'political battleground' themes surrounding the 2012-2013 Budget were also well-defined yesterday, with the Prime Minister describing the Government's deficit and debt levels, and overall fiscal position, as "much worse than we had anticipated".

Michael Halkitis, his minister of state for finance, went further in castigating the former Ingraham administration for "reckless" spending, particularly during the final months of its term.

He added that the previous government's fiscal policies had "severely constrained our room to manoevere", a signal that the PLP administration will likely lack the financial headroom to implement at least some of its pre-election manifesto promises.

The Opposition Free National Movement (FNM), though, will likely retort that the Government already knew the extent of the Bahamas' fiscal woes, having been fully briefed on the New Providence Road Improvement Project cost overruns and voted on all borrowing/spending resolutions brought to Parliament by the former administration.

It will argue that the Government is simply looking to blame the Ingraham administration, and in doing so, provide a cover for why it is unable to deliver on pre-election promises that the FNM has branded unrealistic.

Still, whichever way it is sliced and diced, the Bahamas' fiscal situation is dire. "The fiscal accounts are in much worse shape than we had expected as we came into office," Mr Christie warned yesterday.

"Indeed, this year's projected GFS deficit outturn is significantly higher than had been forecast by the previous administration last year's Budget communication. The GFS deficit in 2011-2012 is now projected at $504 million, up by a full $256 million from the previous government's estimate of $248 million."

The $256 million overshoot on the GFS deficit is 103 per cent, or more than double, the FNM's 2011-2012 Budget forecast, with the total $504 million deficit equivalent to 6.3 per cent of GDP - an unsustainable level more than double the 3 per cent estimate.

As a result, the Government's direct debt-to-GDP ratio will hit 50.6 per cent at June 30, 2012, as opposed to the 46.2 per cent level projected in last year's Budget.

Mr Christie's presentation, though, indicated that the majority of the GFS deficit overshoot for 2011-2012 was attributable to capital spending set to come in $119 million, or "almost 43 per cent", above target at $399 million - compared to the forecast $280 million.

The Prime Minister said the capital spending overshoot was "due in substantial part to a considerable increase in spending on the New Providence Road Improvement Project".

While faring a little better, the FNM administration also seems set to exceed its recurrent deficit estimates by 54.8 per cent, the projected outturn for 2011-2012 being $257 million as opposed to $166 million.

This, Mr Christie said, was the result of a combination of recurrent revenues "underperforming relative to the forecast" and recurrent spending beating projections at $27 million to hit $1.707 billion. Recurrent revenues for 2011-2012, he added, were set to come in at $1.45 billion, off target by $64 million.

Moving forward, Mr Christie pledged that the Government would move to "redress the unsustainable balance in our recurrent account" through a two-pronged strategy.

This, he said, would involve constraining recurrent spending so it grew in line with the Bahamian economy's growth, and "engineering a transformation of recurrent revenue to bring it to a more appropriate level relative to the size of the economy".

Promising to "hold the line" on recurrent spending in 2012-2013 "to the maximum extent possible", Mr Christie said it was still projected to rise by 6.7 per cent or $114 million to $1.821 billion, compared to $1.707 billion in the last fiscal year.

He added that $55 million of the recurrent spending rise was due "to the increased requirements for debt redemption in the coming period".

As for recurrent revenues, Mr Christie said they were projected to improve to 18.3 per cent of GDP in 2012-2013, up from 18.1 per cent in the current fiscal year. The Government is forecasting an increase from $1.45 billion to $1.55 billion, due to improved collections from Excise Tax and real property tax reforms.

As for capital spending, the Prime Minister said this would remain flat at $400 million in 2012-2013, attributing this to "a large inventory of ongoing projects" - including the $77 million borrowing for the New Providence Road Improvement Project.

May 31, 2012

tribune242

Caribbean Blog International

The Moody's credit rating agency warned that the Progressive Liberal Party’s election-promised mortgage plans created a “moral hazard” that “could increase Bahamian mortgage delinquencies ...and cost the Bahamas Government a sum equivalent to 3.1 per cent of GDP ...spread over five years,”...

A Reckless Promise That Might Founder

tribune242 editorial


.

TUESDAY’S first cabinet meeting of the newly-elected PLP government, marked Day One of its first 100 days of governing, Prime Minister Perry Christie announced. Day One was also marked with a warning salvo from Moody’s Investment Services, one of three major credit rating agencies.

One could say that the new government entered its second term with a bang, but the bang did not bring good news. The credit agency warned that the PLP’s election-promised mortgage plans created a “moral hazard” that “could increase Bahamian mortgage delinquencies and cost the Government a sum equivalent to 3.1 per cent of GDP spread over five years,” Tribune Business reported. Moody’s saw the move as demonstrating a “lack of commitment” on the part of the new administration to tackle annual fiscal deficits running at over 4 per cent of gross domestic product.

Moody’s described the election-promised mortgage relief plan as “a credit negative,” implying that its implementation could lead to a further downgrade rating. Something, said Moody’s, that could scare away foreign investors and increase the Bahamas’ borrowing debt servicing costs in the international capital markets. It was pointed out that with economic growth and recovery a top priority, the last thing the Bahamas needed was to send the wrong message that would deter foreign direct investment, Tribune Business reported.

It was also the last thing the PLP government would want to deal with considering the hoop-la it raised last year when Moody’s downgraded the country from “stable” to “negative” due to the mounting debt accrued over the past decade. Earlier that year — in May — Standard & Poor affirmed its BBB+ rating for the Bahamas. Up to that time, the Bahamas maintained an A3 government bond rating.

The PLP were scathing in its remarks condemning the downgrade. It said the Moody downgrade “confirms government’s mismanagement”.

Of course, they were referring to the FNM government, which, in turn, explained that the recent global economic and financial crisis necessitated the “extraordinary levels of spending” despite a “precipitous” decline in revenue.

It explained that funds were needed to “safeguard the financial system, boost economic activity and provide assistance to Bahamians badly in need of help in these trying times”. The PLP would have none of it. Now faced with the same problem, its desperation appears to be tempting it to commit political suicide.

Despite being aware of the critical financial situation, on the campaign trail Mr Christie promised the impossible to voters. Now that the time has come to deliver, he is going to find it difficult to explain that he might not be able to keep his commitment.

In a 10-point plan of delivery, he promised Bahamians who had defaulted on their mortgages and had lost their homes to banks, that he would — among other things — get banks to agree to write off 100 per cent of unpaid interest and fees for all those facing foreclosure.

In Mr Christie’s opinion, “this should be acceptable to the banks as they would already have made provisions against these losses”.

“Therefore, writing off the unpaid interest and fees would have no immediate financial impact on the banks,” he said.

“As for the delinquent borrowers, they would benefit from the fact that their outstanding balances would fall substantially.”

Rather than the Christie plan being acceptable to bank managers, the very thought sent shivers down their spines. They knew that this would be a signal for Bahamians to stop their mortgage payments in the knowledge that not only would rates be lowered, but their debt would eventually be written off by government.

According to Moody’s, there is some $3.2 billion worth of outstanding mortgage loans in the Bahamas’ banking system, which is equivalent to 39.6 per cent of GDP.

The situation is so delicate that today bankers are unwilling to speak to the press about the problem.

However, one banker told Tribune Business that as a result of the new government’s promises, “banks are already seeing a deterioration in arrears for mortgages under 90 days past due”.

“Those under 90 days past due have increased since the PLP announced its scheme. We were alarmed at the trend,” said the banker.

We all feel sorry for any family who has lost their home, but in trying to rescue them, the PLP government cannot torpedo the whole Bahamas.

They have to stop and think again.

May 17, 2012


tribune242 editorial

Caribbean Blog International

Policymakers and other interested parties would need to closely monitor the national debt situation to ensure that the nation’s economy remains healthy and that our living standards are not threatened by excessive public sector debt

The national debt

thenassauguardian editorial

Governments, international agencies, rating agencies and most businessmen regard the level of national debt to the size of the economy (GDP) as one of the most important economic indicators in assessing the current and future health of the economy.

The national debt consists of funds borrowed directly by the government plus any debt of the government corporations which have been guaranteed by the government.

Governments usually borrow funds when there is a need to undertake capital projects (office buildings, schools, roads, docks etc.) and the revenue from taxes is insufficient to cover the capital works.

The size of any economy determines the level of potential taxes that could be collected to meet government expenditure needs for, among other things, education, health, law enforcement, social welfare and of course, debt servicing of any loans taken out by the government.

Current and future living standards in any country are influenced by the amount of resources applied by governments, on a yearly basis, to education, health, national security, social welfare and other public sector areas.

In order to ensure that sufficient resources are available on a sustainable basis for those fundamental public sector functions, good fiscal management compels governments to restrain the growth in debt servicing to a level where it does not threaten to crowd out and push aside the needs of the other important sectors of society.

In many third-world countries in Africa, Asia, Latin America and the Caribbean, the public resources from tax revenues to finance public debt have exceeded the public resources allocations for education and health; a position considered by many as an undesirable path towards the lowering of living standards.

In an attempt to address poor policy choices by governments, international agencies such as the IMF (International Monetary Fund), World Bank and the IDB (Inter-American Development Bank) which provide economic advice on a global basis, urge governments to try and keep debt ratios (total national debt as a percentage of total national output or GDP) to a reasonable level.

In the case of developing countries such as The Bahamas, the level suggested is somewhere in the region of 40 percent.

Most countries, particularly those in the developing world, have fallen short of that objective.

Indeed, with the exception of Trinidad and Tobago at 26 percent, many developing countries are in the high 80s (Barbados) or, in some cases the ratio exceeds 100 percent, (Jamaica at 123 percent for example), while the European countries have set the debt to GDP ratio at 60 percent as the desired level for their community.  Our nearest neighbor and largest trading partner, the United States, has a debt to GDP ratio that stands at an unusually high level of 97 percent.

When a country’s debt to GDP is high, it implies that the country is struggling and could have difficulty servicing its debt.

Currently The Bahamas’ ratio is in the high 50s and growing.

It is not yet in troublesome territory, but given the trend over the past few years and the growing commitments to further borrowing, including the Chinese loans and the associated capital needs of the utility companies, there is surely some cause for some concern.

The policymakers and other interested parties would need to closely monitor the debt situation to ensure that the nation’s economy remains healthy and that our living standards are not threatened by excessive public sector debt.

Oct 25, 2011

thenassauguardian editorial

Caribbean Blog International

Bahamas: Increases in population lead to increased crime ...while increases in gross domestic product (GDP) lead to decreased crime

Study keys in on causes of crime

By Candia Dames
Guardian News Editor
candia@nasguard.com

A new scientific study by a College of The Bahamas researcher has concluded what may come as no surprise to policymakers: Increases in population lead to increased crime while increases in gross domestic product (GDP) lead to decreased crime.

“If you know what your population growth is going to be, the government would have to increase GDP by a certain amount to keep the crime rate at wherever their quota is,” said Dr. Yan Lyansky, an assistant professor in the School of Mathematics, Physics and Technology.

Lyansky has come up with a mathematical formula, which he said could accurately predict what the rate of crime would be at any given point in the future based on the population of The Bahamas and the size of its economy.

“Everybody is worried about crime, but according to the numbers it doesn’t look different historically from what’s been going on a very, very long time ago,” he said.

“What I mean is when you talk about population growth, you’re going to naturally get more crime and everything looks consistent.

“It looks like maybe in more recent history there is little more of a spike but there’s not enough data for that to analyze.”

The paper is one of the studies that will be presented at COB’s 2011 Violence Research Symposium on November 3.

The goal of the research conducted by Lyansky is to find the best predictors of violent crime in The Bahamas.

“We assume that the government will be able to change policy to lower the crime rate if it knows the determining factors that influence crime,” said the study’s abstract.

The paper notes that crime has been an escalating problem in the Caribbean.  In The Bahamas, the general public perceives that crime is out of control, it adds.

The paper also says, “The police commissioner is under pressure to find a solution to the problem.”

The study says that as the population increases, the government may need to invest an even greater proportion of its resources in dealing with crime as the number of crimes increase.

It adds, “Government policies should be designed to increase the prosperity of the nation, but what this data shows is that when the country can not position itself to compete or can not cope with external shocks, then crime would be expected to rise.”

In an interview with The Nassau Guardian, Lyansky said, “We can predict exactly where the crime rate’s going to be moving forward, given the fact that it has been very accurate in the past.”

He said that many people who speak about crime and the causes of crime — including some authorities — do not speak from a factual position.

“A lot of the things that are written about crime, that I’ve read, and the explanations that I’ve heard make me shake my head.  They’re not going to help advance a solution,” Lyansky said.

As an example, he said, “The police commissioner, he was close to my house one day giving a talk and his explanation was that it’s all based on drugs and you know, that’s a bunch of nonsense and the reason it’s nonsense is I would actually have liked to make a correlation between the two, however, there is no data on drugs, drug usage or anything here so to make a blanket statement like that, it’s just a statement.

“You’re not actually going to be making progress from [those kinds of statements].”

Lyansky said there are so many inconsistencies in explanations some people provide regarding the causes of crime that it’s impossible to make any scientific determinations about them.

Speaking of the importance of scientific research, he said, “It gives you a better predictor moving forward.

“…If you need GDP to increase and you know the population’s going up, you need to do this to GDP and hence that would be a basic way (to fight crime).”

Oct 24, 2011

thenassauguardian

Caribbean Blog International

The threat of excessive public sector debt in The Bahamas...

The national debt

thenassauguardian editorial



Governments, international agencies, rating agencies and most businessmen regard the level of national debt to the size of the economy (GDP) as one of the most important economic indicators in assessing the current and future health of the economy.

The national debt consists of funds borrowed directly by the government plus any debt of the government corporations which have been guaranteed by the government.

Governments usually borrow funds when there is a need to undertake capital projects (office buildings, schools, roads, docks etc.) and the revenue from taxes is insufficient to cover the capital works.

The size of any economy determines the level of potential taxes that could be collected to meet government expenditure needs for, among other things, education, health, law enforcement, social welfare and of course, debt servicing of any loans taken out by the government.

Current and future living standards in any country are influenced by the amount of resources applied by governments, on a yearly basis, to education, health, national security, social welfare and other public sector areas.

In order to ensure that sufficient resources are available on a sustainable basis for those fundamental public sector functions, good fiscal management compels governments to restrain the growth in debt servicing to a level where it does not threaten to crowd-out and push aside the needs of the other important sectors of society.

In many third-world countries in Africa, Asia, Latin America and the Caribbean, the public resources from tax revenues to finance public debt have exceeded the public resources allocations for education and health; a position considered by many as an undesirable path towards the lowering of living standards.

In an attempt to address poor policy choices by governments, international agencies such as the IMF (International Monetary Fund), World Bank and the IDB (Inter-American Development Bank) which provide economic advice on a global basis, urge governments to try and keep debt ratios (total national debt as a percentage of total national output or GDP) to a reasonable level.

In the case of developing countries such as The Bahamas, the level suggested is somewhere in the region of 40 percent.

Most countries, particularly those in the developing world, have fallen short of that objective.

Indeed, with the exception of Trinidad and Tobago at 26 percent, many developing countries are in the high 80s (Barbados) or, in some cases the ratio exceeded 100 percent, (Jamaica at 123 percent for example), while the European countries have set the debt to GDP ratio at 60 percent as the desired level for their community. Our nearest neighbor and largest trading partner, the United States, has a debt to GDP ratio that stands at an unusually high level of 97 percent.

When a country’s debt to GDP is high, it implies that the country is struggling and could have difficulty servicing its debt.

Currently The Bahamas’ ratio is in the high 50s and growing.

It is not yet in troublesome territory but given the trend over the past few years and the growing commitments to further borrowing, including the Chinese loans and the associated capital needs of the utility companies, there is surely some cause for some concern.

The policy makers and other interested parties would need to closely monitor the debt situation to ensure that the nation’s economy remains healthy and that our living standards are not threatened by excessive public sector debt.

3/18/2011

thenassauguardian editorial

Bahamas Blog International

The Bahamas' ever-expanding national debt: "the biggest threat" to the Bahamian economy's recovery and medium to-long-term prospects...

'Biggest threat' from $4.1bn national debt
By NEIL HARTNELL
Tribune Business Editor



The ever-expanding national debt, which hit $4.139 billion at end-September 2010 after growing by 12.5 per cent or $460.5 million over the previous 12 months, represents "the biggest threat" to the Bahamian economy's recovery and medium to-long-term prospects, a former finance minister warned yesterday.

James Smith, minister of state for finance in the former Christie government between 2002-2007, said that while the Bahamas' national finances were "nowhere near crisis" point yet, the "worrisome" aspect was the "aggressive" and "accelerated rate" at which the national debt and its ratio to gross domestic product (GDP) was increasing.

Arguing that the Bahamas urgently needed to regain its fiscal headroom to cope with further unexpected future shocks to its economy, Mr Smith said the main concern was the trajectory at which the national debt and debt-to-GDP ratio were rising, especially since the revenues to service them were still falling.

Commenting on the most recent national debt figures, published by the Central Bank in its 2010 third quarter economic review, Mr Smith said: "The increase is getting a little aggressive. Any time you have this continuing trend, and it's an upward trend, that's the concern, because it comes at a time when there is no increase in revenue, so the debt service element is growing at full steam.

"With less revenue coming in, and the cost of financing the debt going up, a greater part of Government expenditure has to be dedicated to debt servicing." As a result, the sums available for the Government to spend on essential services, such as health, education and national security, would be less.

Concern:

"There ought to be some concern about the rate of increase in the debt, because it's very difficult once you step over that slope to come back," the former finance minister added. "I don't think we're anywhere near crisis; it's the trend that's the worrisome part."

The Bahamas' national debt grew by 12.5 per cent or $460.5 million over the 12 months to September 30, 2010, and by 4.4 per cent or $173.3 million during that third quarter, aided by a $100 million domestic government bond issue.

While many small island economies had managed to withstand the global recession with higher debt-to-GDP ratios than the Bahamas, a number had been forced to head for the International Monetary Fund (IMF) to restructure their debt. And they, like the Bahamas, did not have a hard currency to back their debt, being forced to borrow in foreign currency.

The Central Bank report also highlighted another concern, namely that public sector foreign currency debt stood at $1.324 billion as at September 30, 2010, with 59.3 per cent directly attributed to the central government. And, according to Tribune Business calculations, foreign currency accounts for 32 per cent - almost one-third - of the total national debt.

"That's also worrisome," Mr Smith responded, when informed by Tribune Business about the level of foreign currency debt. "What is happening is that we're seeing a build-up in foreign currency reserves, which is good, but that has been produced by the Government's foreign currency borrowing and the IMF subvention [special drawing rights]."

The real issue for the Bahamas could come "somewhere down the road" when the Government's foreign currency bond issue matured, requiring a multi-million dollar principal repayment, likely to be in the region of $200-$300 million, to be made to the investors.

While the Government's existing foreign currency bonds all had medium and long-term maturities, if the foreign reserves were not boosted by inflows from tourism and foreign direct investment, the principal repayments would represent a substantial drawdown on these reserves - currently standing at $875 million.

Ultimately, this could result in "more and more foreign currency being used for debt reduction, as opposed to bolstering the economy" through import spending and such like, Mr Smith said, adding: "We have to be careful about the foreign currency portion of the debt.

"Right now it looks good on the monetary side because the reserves have increased, but that's not come from tourism or foreign direct investment - it's come from the proceeds of debt.

Rates:

"Again, down the road, in maybe another two or three years' time, when you look at this in a global context where interest rates have been held down by quantitative easing, the rate on our foreign currency borrowing could rise because it's tied to LIBOR.

"This debt servicing component of the Budget could rise even further still."

Describing the national debt and its growth rate as "the biggest threat" to the Bahamas' medium and long-term economic growth and stability, Mr Smith told Tribune Business: "We are rapidly using up the headroom in the event we do have problems down the road, and for us it's external events that put us out."

Pointing to the 'short, sharp shock' to the Bahamian economy caused by the travel hiatus following the September 11 terror attacks, which plunged this nation into a temporary recession, Mr Smith added that with the likes of Europe and US also carrying major debt burdens, the Bahamas would have to compete for "the same pool" of financing, something that could see it crowded out or forced to pay higher interest rates on its debt.

"We're not out of the woods yet. We need to continue to get the headroom in the event of a short-term crisis," Mr Smith said. He urged the Government to conduct a careful, proper analysis of the fiscal picture to ensure the Bahamas enjoyed a soft landing.

And the former finance minister warned that while the Government "may have it under control internally", the growing national debt and falling revenues would be interpreted as a bad sign by the international community. Indeed, the rising level of government debt saw interest payments during the first quarter of the 2010-2011 Budget year to $44 million, a growth of $12.2 million or 5.29 per cent.

The direct debt charge on the Government grew by 5.3 per cent or $181.4 million over the 2010 third quarter, and by 10.6 per cent or $342.6 million in the 12 months to September 30, 2010. Bahamian dollar obligations accounted for 78.1 per cent of this direct charge.

December 31, 2010

tribune242

Bahamas Blog International

Bahamas Economy Is In A Depression says Veteran Banker Al Jarrett

Economy In Depression
By Kendea Jones:



Veteran banker Al Jarrett said yesterday that the country is really in a depression rather than in a recession because there has been no positive growth in the country for two consecutive years.

What’s worse, according to Mr. Jarrett is that the country’s may not recover next year.

"A recession is a down swing but it comes back in at 12 months. It started in 2008 and 2011 is headed in that direction. The government has yet to give you what the negative growth is in 2010 and this year is just as bad as last year in terms of the deficits and debts," he said while appearing on the Love97/JCN programme "Jones and Company".

Mr. Jarrett said he has been following financial reports from the government closely and that he is convinced that the deficit is higher than has been reported by the government.

"Based on the government’s numbers as I see them we are looking at 4 per cent GDP. I deal with the facts that come out of the government agencies themselves. The problem is the government has been [misrepresenting] the figures. Last year, they showed the wrong debt structure when they did the budget and this year they showed the wrong GDP. Moody’s Credit Rating just corrected the government the other day. When the agency saw that, it put (government) on notice that the national debt is going to be 64 per cent."

To prove his point Mr. Jarrett said most countries use one formula to calculate their GDP.

"If you have a declining GDP that comes from the existing GDP and it is deducted. If the GDP is increasing it is added. The International Monetary Fund (IMF) says the GDP is 5 per cent, the government says its 4.3 per cent Moody’s says its 4.5 per cent, the Central Bank says its 5 and that’s in 2009," he explained.

"Now in 2010, the figures aren’t even out yet and the government is saying it is 0.5 per cent and Moody’s is saying it is 1 per cent. I am saying it is three per cent based upon on what they are saying," Mr. Jarrett said. "They have not produced a number that was correct in three years because they put the wrong numbers in from the beginning."

Government debt at the end of June 2011 is projected to stand at 49.2 per cent of GDP, up from 47.3 per cent a year earlier, according to officials.

When asked by host Wendall Jones if political affiliation to the Progressive Liberal Party (PLP) had anything to do with his findings, Mr. Jarrett quickly dismissed that assertion.

"It’s sad when Bahamians get to the point when they cannot engage you intellectually. I can’t deal with people who make statements like that because I deal with facts. I can’t respond to that. I am one of the freest Bahamians in this country. I never lied to the Bahamian public in television or radio. If I have to lie on the behalf of a political party then that party does not deserve to be in office," he said.

Mr. Jarrett also said it is clear that the government did not present a budget that was in the best interest of Bahamians.

"I think that the government made a mistake or it was too lazy to produce a budget that was all encompassing and affecting the country and its people. They were concerned about the offset budget to impress the IMF that they were doing something about the mounting debts of $1 billion plus dollars and they were told they had to stop borrowing," Mr. Jarrett said.

"Now they have to offset projects. The government has put itself in a position where the international agencies are now looking at them very closely because they came close to the edge with the over-borrowing and record deficits and debts."

The veteran banker said he believes that international agencies dictate the government’s budget.

"They are following the dictates of the international agencies and the IMF because they are saying to the government that ‘if you don’t stop what you are doing we are going to downgrade you,’" Mr. Jarrett said.

"The agencies are also saying that ‘you are going to be downgraded unless you start putting out realistic budgets that makes sense and can be achievable. You are overstating your revenues and you are increasing your expenditure based on false revenues."

Mr. Jarrett said if he were minister of finance, international financial watchdogs would have no need to make these kinds of statements.

"I would not have gone on a borrowing binge unless I had a real stimulus. I would have made sure that if I produced a budget, on the revenue side it would have been more conservative and more realistic to reflect the times we are in," he said.

"Once you have the experience and the knowledge to understand the financial market and microeconomics you would know these things."

State Minister for Finance Zhivargo Laing was quick to shoot down Mr. Jarrett’s assertion by saying the veteran banker is the one who is mistaken.

"That is just utter nonsense," he said when contacted by the Journal. "The problem with what Al Jarrett says is that he is speaking to GDP over a calendar year from January to December but the fiscal year runs from July to June. So what happens is that you have to do an average of the GDP over two halves of a calendar year to capture what the GDP would be over a fiscal period."

"When he suggest that we did not include the contraction of last year and this year, he has no clue that in a fiscal period you have to calculate over the 12 -month period in the fiscal year."

The minister also expressed confidence that the economy will begin to rebound next year.

"What we are forecasting and what the IMF is forecasting is that there will be some improvement next year over this year" Minister Laing said.

The government’s $1.8 billion came into effect on July 1.

The budget allocates some $1.55 billion for recurrent expenditure and more than $265 million for capital expenditure.

The government is however determined to tighten the rein on revenue collection.

Getting its fiscal house in order has also forced the government to roll out tough cuts to public spending and a raft of tax increases.

Immediately after doing so, the Opposition slammed the new fiscal plan as a "tax and pain budget" that would only put more pressure on the backs of Bahamians.

But Minister Laing insists that the government is doing what it can to cut the deficit.

"It is in the interest for the people of the Commonwealth of The Bahamas and generations of Bahamians to be able to have our deficit reduced and borrowing reduced because it helps us to position ourselves in the event that something else should happen in the future," he said. "Al Jarrett’s comments are often laced with his own political agenda."

July 26th, 2010

jonesbahamas

Bahamas Blog International

The Bahamas National Debt Increases

Fiscal experts have warned repeatedly that government debt exceeding 40 percent would signal danger as The Bahamas government may be forced into a mode of borrowing that could be fiscally unhealthy 

Bahamas: $2.54 Billion In National Debt

By Candia Dames

candiadames@hotmail.com

Nassau, The Bahamas

24 August 2005

The National Debt rose from $2.54 billion to $2.63 billion in the second quarter of 2005, the Central Bank of The Bahamas says in its newly released statistical digest.

In the second quarter of 2004, the National Debt stood at $2.39 billion, but has continued to see a steady rise, according to the figures.

The report reveals that the government’s contingent liabilities continued to grow, jumping from $438.4 million in the first quarter of 2005 to $454.13 million in the second quarter of the year.

The National Debt takes into consideration the government guaranteed borrowings of public corporations and other public entities.

These contingent liabilities include the $24 million in bonds issued by the Clifton Heritage Authority; $40.7 million in loans taken up by the Education Loan Authority; and $111.7 million in Bahamas Mortgage Corporation loans.

At the end of this fiscal year, government debt as a percentage of GDP is projected to be 37.5 or $2.330 billion.

Fiscal experts have warned repeatedly that government debt exceeding 40 percent would signal danger as the government may be forced into a mode of borrowing that could be fiscally unhealthy.

In the notes attached to the 2004/2005-budget communication, the government explains that growth in the debt is justified if it supports increases in the productive capacity within the economy, and if the servicing burden from principal repayment and interest costs does not unduly constrain the economy’s access to foreign exchange for other beneficial purposes.

It’s a point Minister of State for Finance James Smith – who is presently in the U.S. convalescing after what was termed a successful surgery – has made repeatedly.

He has also noted that the economy is projected to grow by 3.5 percent this year and the foreign component of the National Debt is "extremely low."

In an earlier interview, Minister Smith explained that, "If the $2 billion were held by a foreign bank, at anytime [that bank] could demand payment and you’re virtually bankrupt.  You can’t even go and negotiate with them for whatever reason.  So that means your risk is much higher."

The government has also noted that international observers closely monitor the total foreign currency debt of the government and public corporations, as on the repayment side it represents a required use of foreign exchange earnings.

The International Monetary Fund recommended in its June 2005 report on The Bahamas "a further strengthening of the 2005/2006 fiscal stance relative to the budget proposal and closer monitoring of budgetary developments to help ensure that the more stringent objective [of government debt-to-GDP ratio of 30 percent] is achieved."

In the upcoming fiscal year, the government intends to spend $1.214 billion, an increase of $39 million, or three percent over the 2004/2005 budget.

The government projects it will collect $1.145 billion, an increase of $93 million, or nine percent in revenues.

The Bahamas Government’s Commitment to Fiscal Prudence Questioned

Hubert Ingraham on Fiscal Prudence

Ingraham Slams Budget

By Candia Dames

candiadames@hotmail.com

Nassau, The Bahamas

17th June 2005

There appears to be a disconnect between an expanding economy and the growth in government revenue, former prime minister, Hubert Ingraham, declared in the House of Assembly on Thursday as he questioned the government’s commitment to fiscal prudence.

During the budget communication on May 25, Acting Prime Minister Cynthia Pratt noted that the government is aiming to contain the ratio of government debt to GDP to under 38 percent in fiscal year 2005/2006.

Expert advice is that the government should limit the ratio of government debt to GDP to as near as possible to 30 percent "so as to avoid the problems which would arise from a ratio significantly in excess of that level."

The government also projects that in the two fiscal years that will follow 2005/2006; the ratio of government debt to GDP will still remain around the 37 percent level.

At the time, the Acting Prime Minister also noted that the ideal government revenue to GDP is about 20 percent, but she admitted that this is becoming increasingly hard to achieve because of the narrowness of the country’s revenue system, which is heavily dependent on customs duties.

The government also projects a GFS deficit of $172 million, which would be $30 million more than what was projected for 2004/2005.

However, Mrs. Pratt stressed that the economy is on the upswing with growth of 3.5 percent expected in 2005.

The projections were the basis for Mr. Ingraham’s declaration of an apparent disconnect.

In the five years immediately prior to September 2001, government revenue averaged roughly 19 percent of GDP, he said, adding that the actual results of the following three years show government revenue falling by more than 2 percentage points to under 17 percent of GDP.

"It is therefore not a sufficient economic policy to focus exclusively on foreign investment and its impact on economic growth when that economic growth is not simultaneously translating into increased government revenue," Mr. Ingraham reasoned.

"Nothing can more quickly and more effectively arrest that flow of inward investment than a fiscal situation which is not sustainable, where the level of debt continues to rise by an ever increasing proportion of GDP, and where doubts about the commitment of fiscal management may legitimately arise."

He also indicated that after falling continuously since fiscal year 1996/1997, government debt as a percentage of national income has been increasing steadily each year since fiscal year 2001/2002.

"It would have been desirable for this budget to give a signal of a commitment to change in this pattern," Mr. Ingraham said.  "It did not."

He also pointed to the projected outcome of a GFS deficit of 2.8 percent for 2005/2006, the same outcome projected for 2004/2005.

"As a result, government debt as a per centum of GDP is projected to grow by 1/2 of 1 percent in fiscal year 2005/2006, rising from 37 percent to 37 1/2 percent and projected to rise further in 2006/2007," Mr. Ingraham said.

"This [is going to happen] at a time when the economy is projected to grow by a nominal rate of more than 5 percent.  There is no better time to send the signal of fiscal prudence than now.  If it cannot be done now, when can it be done?  Next year with election in the air?"

He said the widening of the recurrent deficit over the last several years has to be a major concern for those who value prudent fiscal management.

"The recurrent balance is a critical element in fiscal management," he reminded.  "For governments, it reflects the long-term sustainability of its fiscal situation.  It is for this reason that my government’s fiscal policy focused so heavily on the recurrent account which led to a substantial lowering of the level of recurrent imbalances and eventually resulted in a surplus on the recurrent account for two fiscal periods running – 1999/2000 and 2000/2001, for the first time in 23 years."

The Bahamas 2005-2006 Fiscal Deficit is Projected to Increase Over the Previous Period

The Bahamas 2005-2006 National Budget Projects The Government Finance Statistic (GFS) Deficit of $172 million

Budget Deficit Soars

By Candia Dames

candiadames@hotmail.com

Nassau, The Bahamas

26th May 2005

The 2005-2006 budget projects a GFS deficit of $172 million, which would be $30 million more than the deficit expected when this fiscal year draws to a close on June 30.

The $172 million deficit would be 2.8 percent of GDP and would be the highest deficit since fiscal year 2002-2003 when the spending shortfall came in at $184 million.

There are several factors that are expected to contribute to increased spending in the 2005-2006 fiscal year, Acting Prime Minister Cynthia Pratt announced in the House of Assembly yesterday.

The recurrent expenditure is pegged at $1.214 billion, which is an increase of $39 million or 3 percent over the 2004/2005 budget.

"The single major component of the increase is the provision in the Ministry of Finance Estimates to pay increases for public servants and related groups, arising from the present negotiations, as well as some increase in benefits for retired public servants," Mrs. Pratt announced.

"Another important increase is for the improvement in insurance arrangements for the Royal Bahamas Police Force, the Royal Bahamas Defence Force and the other law enforcement officers."

This comes to a total of $8 million, the Acting Prime Minister announced.

In addition to the GFS deficit, one of the traditional highlights in the annual budget communication is the ratio of government debt to GDP given that financial experts continue to advise that this ratio should be kept as near as possible to 30 percent of GDP to avoid the problems which would arise from a ratio significantly in excess of that level.

Exceeding the 40 percent mark could mean that the government’s ability to borrow money would be severely constrained and it would be forced to sharply increase taxes, Mrs. Pratt reiterated during her communication, which she delivered on behalf of Prime Minister and Minister of Finance Perry Christie, who is still convalescing at home three weeks after suffering a slight stroke.

"Fiscal deficits arise if we spend more than we earn in revenues and if this situation continues for long enough we build up massive borrowing problems," Mrs. Pratt pointed out.

She added that circumstances are quite different if the ratio of government debt to GDP is closer to 30 percent.

"There would be much greater scope to avoid these drastic remedies because there would be the capacity to borrow until the economic situation improves and until revenues recover so as to again close the gap between revenue and expenditure.  This is what transpired in 2001 and 2002," the Acting Prime Minister said.

She said in order to bring the ratio of government debt to GDP as close as possible to 30 percent revenues must consistently attain the level of 20 percent of GDP.

"At that level, we can also provide the level of revenue resources which we need for ongoing public expenditure while containing the fiscal deficit," Mrs. Pratt said.

She also noted that successive governments have tried to attain the ratio of government revenue to GDP of about 20 percent.

At that level, Mrs. Pratt said, Bahamians could enjoy a reasonable level of public services without the introduction of taxation to pay for them.

"However, the ratio of revenue to GDP of 20 percent is becoming increasingly hard to achieve because of the narrowness of our revenue system, heavily dependent as it is on customs revenues and the non-taxation of services.  Thus, the expansion of essential public services has resulted in fiscal deficits emerging, which have been met by borrowing.

"As a result, the level of government debt to GDP has risen inexorably since the year 2000.  In recognition of this issue, in the 2005/2006 budget- the government is aiming to contain the ratio of government debt to GDP to under 38 percent."

The Acting Prime Minister also said that the government is continuing an aggressive process of addressing tax reform to improve its revenue situation.

The 2005-2006 budget projects recurrent revenue of $1.145 billion, an increase of $93 million or 9 percent over the 2004/2005 budget.

"The reason for projecting an increase of 9 percent over 2004/2005 is because of the strengthening of the economy, with growth in current terms of over five percent and the heightened emphasis being given to concrete and specific improvement in revenue administration," Mrs. Pratt said.

The Acting Prime Minister also announced that the government plans to improve all of the country’s national airports to raise them to the highest standards required.

"Accordingly, a variety of air navigational fees and related charges in the Family Islands are being increased to more realistic levels to meet part of the cost," she announced.  "In addition, it is intended to implement passenger facility fees at major airports as part of the cost recovery exercise."

Prime Minister Perry Christie's Consolative News on The Budget Deficit

Prime Minister Christie's comforting words on the deficit: ...new revenue figures seem set to improve the fiscal outlook and GFS deficit for next year

Deficit Forecast Revised

By Candia Dames

candiadames@hotmail.com

Nassau, The Bahamas

21/06/2004

More than three weeks after his deficit projections in the budget communication sparked criticism in some quarters, Prime Minister Perry Christie has revised those numbers, providing a more positive forecast.

Mr. Christie told the Journal shortly after Members of Parliament passed the 2004/2005 budget late Friday night that new revenue figures seem set to improve the fiscal outlook and GFS deficit for next year.

The budget projects a GFS deficit of $164 million, but the prime minister said it is likely that the figure will be less.

He said the new expectation is that the deficit for 2004/2005 could be closer to 2.5 percent of GDP as opposed to the 2.9 percent he projected in the budget communication on May 26.

At the time, the prime minister said, "If the process of reviewing the national accounts data leads to substantial increases in the GDP data, the actual level of GSF deficit could be considerably lower."

While speaking to the Journal, he said his hopes have been realized.

"We were projecting an outturn for 2003/2004 of $920 million," Mr. Christie said.  "We have now been informed that the revenue of $920 million has already been registered and it is likely that we will record an amount nearer to $950 million.  We believe that this is indicative of the improved techniques and procedures in revenue collections."

The prime minister said it is important for him and his government to see this as an indicator because they have argued in the budget presentation that there will be 3 percent growth in the economy this year.

When added to improved revenue collections, this would allow the government to "attack" the GFS deficit, he said.

"What I think is to be learnt from this is that the efforts of the Ministry of Finance to introduce technology and expertise inclusive of equipment for the enhanced collection of revenue is serving to be to the advantage of the government," the prime minister said.

"We have truly predicated our budget on this basis: We believe that rather than pass additional taxes, which in part was recommended by the [International Monetary Fund], that we are able to, based on historical evidence, take advantage of the capital inflows as a result of the Kerzner development."

He told the Journal that the government has every reason to continue with its optimism.

Only days after he introduced his "no new taxes" budget, Prime Minister Christie faced opposition in and outside of parliament.

Although saying that he was not seeking to put himself at odds with Mr. Christie and his government, Central Bank Governor Julian Francis spoke of the need for Bahamians to pay more taxes to finance government services.

Mr. Francis also warned against continued borrowing to cover the deficit.

When asked to respond to the governor's suggestions, Mr. Christie said, "It shows that if he has done that, and he is able to do it independently of the process of governance of the country, that there is something that we should be doing to harmonize the efforts of those who advise me in the Ministry of Finance and those agencies that are a part of the financial governance of the country, like the Central Bank."

He added, "We ought to make every effort to ensure that we're working together."

Mr. Christie's revision to his deficit forecast came only a day after former Prime Minister Hubert Ingraham told parliament that the new budget does not provide the right tonic for the country's fiscal predicament.

"I assert that now is not the time for reliance to be placed upon unrealistic revenue increases from existing taxation," Mr. Ingraham said.

He also urged the prime minister to "rein your colleagues in."

"They are spending and committing to spending too much," Mr. Ingraham said.  "You have to tell them there are no available government jobs now; they will come when there is strong economic growth and larger investment inflows.  And tell them unless spending is restrained, there won't be any jobs for them."

But a confident prime minister said Friday that, "The growing strength of the economy in 2004 and 2005 will generate significant additional revenues."

The budget debate is scheduled to begin in the Senate today to give Senators enough time to pass the spending plan in time for the new fiscal year, which begins July 1.