Sustainable Development and Prosperity for All Bahamians and The Posterity in The Bahamas

The Bahamas - A Nation in Crisis: A Roadmap for Economic Recovery, Debt Reduction, and National Development in The Bahamas

By Dr Kevin Turnquest-Alcena
Nassau, The Bahamas

The Bahamas, once a leading economic force in the Caribbean, is now at a critical juncture.  The national debt has ballooned, competitiveness has waned, and global competitors, like Bermuda, have overtaken The Bahamas in key sectors such as captive insurance and financial services.  This situation poses serious risks for the nation's future stability, especially considering the lack of financial buffers to withstand natural or economic disasters.

The time for comprehensive reform is now.  The Bahamas must act decisively to address issues in immigration, inland revenue, financial regulation, and urban development, while leveraging examples from countries like Singapore, India, and Jamaica that have successfully implemented similar reforms.  Through bold and innovative measures, The Bahamas can reduce its debt, foster economic growth, and build a resilient future for all Bahamians.

1. Commendation for Inland Revenue and Insurance Sectors

The Inland Revenue Department and insurance sectors are integral to the financial stability of The Bahamas.  Their recent progress in collecting taxes and generating revenue has been commendable, but more must be done to ensure efficiency and sustainability.  The reliance on contract workers, many of whom lack adequate training, has been a challenge.  By transitioning these workers to permanent roles and providing formal training that includes a minimum C grade in Math and English, the government can create a stable and efficient workforce capable of driving tax collection efforts (Bahamas Ministry of Education, 2021).

This initiative must be paired with an increase in the minimum wage to ensure that workers are fairly compensated, thereby boosting morale and increasing consumer spending.  Such measures will help alleviate economic challenges while promoting greater stability in the workforce.

2. Addressing National Debt and Economic Competitiveness

The Bahamas faces a crippling national debt, which as of 2020, had exceeded 103% of GDP (Central Bank of The Bahamas, 2021).  If not addressed, this debt will hinder the country’s ability to invest in critical sectors like infrastructure, education, and healthcare.  Countries like Norway and the UAE have successfully mitigated such risks by creating sovereign wealth funds, which serve as financial buffers during times of crisis.  Establishing a similar fund in The Bahamas could provide a safety net in the event of natural disasters or economic downturns.

Additionally, The Bahamas must reform its financial services regulations to remain competitive on the global stage.  Bermuda’s rise as a global leader in captive insurance is a direct result of its business-friendly regulatory environment.  The Bermuda Monetary Authority has created a balanced regulatory framework that encourages innovation while maintaining compliance, thus attracting international businesses (Bermuda Monetary Authority, 2020).  The Bahamas must take similar steps to regain its competitive edge.

3. Leveraging Customs Instruments and Targeted Taxation for Revenue

To boost national revenue, The Bahamas can implement a sugar tax or similar levies on unhealthy products such as sugary drinks and fast food.  This model has been successful in New York City, where taxing sugary beverages and junk food has raised revenue and improved public health outcomes (New York City Department of Health, 2019).  Such taxes in The Bahamas would target large multinational companies, such as McDonald’s, and provide funds that can be reinvested into critical areas like healthcare, education, and sports development.

Revenue from these taxes should also be allocated toward developing youth programs, supporting social services, and funding national initiatives that promote health and well-being across the country.

4. Reforming Immigration Policies for Nation Building and Economic Development

The Bahamas’ current immigration policies are too restrictive and limit the country’s ability to attract skilled professionals, entrepreneurs, and digital nomads.  Countries like Canada and Singapore have implemented practical immigration policies that bring in skilled workers who contribute to their economies (Canadian Immigration and Citizenship, 2020).  The Bahamas should follow this model, easing immigration restrictions to attract multinational companies (MNCs) and skilled workers who can drive economic growth.

Additionally, undocumented immigrants who are currently part of a parallel economy should be brought into the formal system.  Legalizing their status would allow them to contribute to tax revenues and reduce the strain on public services, while also enhancing national security.  Immigrants are a crucial part of nation-building, and The Bahamas must capitalize on their potential to stimulate economic growth.

5. Implementing a Regulated National Lottery for Systematic Revenue Generation

A regulated national lottery could provide a valuable source of revenue for The Bahamas, funding essential sectors like sports, education, and social services.  Countries such as Barbados and the United Kingdom have used national lotteries to generate significant revenue for national development initiatives (Barbados National Lottery Report, 2020).  Implementing a similar system in The Bahamas would reduce the national debt and provide consistent funding for key public services.

By regulating the lottery, The Bahamas can ensure that funds are allocated systematically, with a focus on youth development, national sports programs, and education.  This will not only alleviate debt but also foster national pride and engagement.

6. Revamping Banking Regulations for Entrepreneurs and Business Development

The Bahamas' banking regulations are currently too restrictive, making it difficult for entrepreneurs and small businesses to access capital.  To support entrepreneurship and stimulate economic growth, the government must implement banking legislation that simplifies access to loans and financing for startups and small businesses.

Countries like India have successfully implemented banking reforms that support small and medium-sized enterprises (SMEs), which are vital to their economy.  By adopting similar reforms, The Bahamas can foster a business-friendly environment that encourages innovation and investment (Government of India, 2020).  Additionally, exchange control policies should be modernized to attract foreign direct investment (FDI), as investors are more likely to bring capital into a country where financial regulations are transparent and flexible (IMF, 2021).

7. Revitalizing Downtown Nassau and Developing Special Economic Zones (SEZs)

Downtown Nassau is in dire need of revitalization.  The area’s colonial architecture is deteriorating, and the lack of modern infrastructure has made it difficult to attract multinational corporations (MNCs) and tourists.  By redeveloping Bay Street into a modern economic hub, The Bahamas can attract global businesses and create jobs for local residents.  This redevelopment should focus on creating a dynamic space for local businesses and international companies, driving economic activity and tourism.

Additionally, The Bahamas should establish Special Economic Zones (SEZs), similar to those in Dubai and Singapore, offering tax incentives and regulatory relief to attract foreign companies and investors.  SEZs can serve as innovation hubs for technology, finance, and entrepreneurship, positioning The Bahamas as a competitive player in the global economy (Government of Singapore, 2020).

8. Strengthening the National Accreditation and Equivalency Council of The Bahamas (NACoB)

The National Accreditation and Equivalency Council of The Bahamas (NACoB) is responsible for ensuring that the country's educational institutions meet international standards.  However, NACoB requires reform to ensure that it is staffed by individuals with the necessary academic and professional qualifications to maintain ISO quality standards.

Countries like Jamaica have successfully implemented educational reforms by appointing qualified professionals to lead their accreditation bodies, ensuring that institutions are held to high standards (Government of Jamaica, 2019).  The Bahamas should adopt a similar approach to strengthen NACoB and ensure that the country's educational institutions are globally competitive.

9. Establishing Planning Commissions for Sustainable Development

The Bahamas must establish Planning Commissions modeled after those in India and Singapore to ensure long-term sustainability and development.  India’s NITI Aayog, for example, serves as a central policy think tank that drives economic growth and development (Government of India, 2020).  Similarly, Singapore’s Economic Development Board plays a crucial role in shaping the country’s economic policies, ensuring that Singapore remains competitive globally (Government of Singapore, 2020).

The Bahamas should establish independent planning commissions tasked with setting national growth targets, managing resource allocation, and evaluating the performance of government departments.  These commissions must be free from political interference and staffed by professionals who understand global best practices in policy development.

10. Conclusion: A Call for Introspection, Reform, and Nation Building

The Bahamas stands at a pivotal moment in its history.  Faced with mounting national debt, declining competitiveness, and an outdated regulatory framework, the country must undertake comprehensive reforms to secure its future.  The examples set by Singapore, India, Bermuda, and Jamaica show that transformation is possible with visionary leadership, practical policies, and a commitment to nation-building.

By reforming immigration policies, modernizing banking regulations, strengthening inland revenue, and implementing a regulated national lottery, The Bahamas can create a more competitive business environment, reduce national debt, and foster long-term economic growth.  Moreover, the revitalization of downtown Nassau and the establishment of Special Economic Zones (SEZs) will attract international businesses and generate jobs, while reforms to NACoB will ensure that the country’s educational institutions meet global standards.

This is not just about economic reform; it is about building a better future for our children, grandchildren, and generations to come.  We must look inward, evaluate our strengths and weaknesses, and implement policies that ensure sustainable development and prosperity for all Bahamians.  Through visionary leadership, investment in human capital, and a commitment to global best practices, The Bahamas can emerge stronger, more resilient, and ready to take on the challenges of the 21st century.

The journey will not be easy, but it is necessary if we are to leave behind a Bahamas that is prosperous, peaceful, and prepared for the future.  We owe it to future generations to act now—together, we can build a nation that not only thrives economically but also serves as a beacon of hope and progress for the world.

Source

References

Barbados National Lottery. (2020). Annual Report. Retrieved from https://www.barbadoslottery.com/

Bermuda Monetary Authority. (2020). Annual Report. Retrieved from https://www.bma.bm/

Canadian Immigration and Citizenship. (2020). Annual Report. Retrieved from https://www.canada.ca/en/immigration-refugees-citizenship/corporate/publications-manuals/annual-report.html

Central Bank of The Bahamas. (2021). Annual Economic Review 2020. Retrieved from https://www.centralbankbahamas.com/research-publications

Government of India. (2020). About NITI Aayog. Retrieved from https://niti.gov.in/

Government of Jamaica. (2019). Education System Transformation Programme. Retrieved from https://www.moey.gov.jm/

Government of Singapore. (2020). Singapore Economic Development Board. Retrieved from https://www.edb.gov.sg/

IMF. (2021). Bahamas Staff Report. Retrieved from https://www.imf.org/external/pubs/ft/scr/2021/cr21248.pdf

New York City Department of Health. (2019). Sugary Drinks Taxation and Health. Retrieved from https://www1.nyc.gov/

Bahamas brain drain and stagnating economic growth

Bahamas Losing 2/3 Of 'Best And Brightest'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Almost two-thirds of college and university-educated Bahamians have moved abroad to seek jobs in developed countries, costing this nation a sum equivalent to 4.4 per cent of annual gross domestic product (GDP).

The so-called ‘brain drain’ was highlighted in a newly-released Inter-American Development Bank (IDB) report, which noted that 61 per cent of tertiary-educated Bahamians had left this nation for jobs in Organisation for Economic Co-Operation and Development (OECD) member countries.

The study, ‘Is there a Caribbean Sclerosis’, which attempts to determine why economic growth in the Bahamas and five other regional nations has been stagnating, effectively suggests this nation is losing its ‘best and brightest’ minds to other economies.

This, in turn, has major implications for the productivity, innovation and creativity of Bahamian firms and the wider economy, all areas where it is suggested this nation is not as competitive as it might be.

The IDB report’s authors, Inder Ruprah, Karl Melgarejo, and Ricardo Sierra, summed it up thus: “The Caribbean countries have lost more than 70 per cent of their labour force with more than 12 years of schooling through emigration.

“This is worrisome because one of the few non-controversial stylised facts in economic growth literature is the positive contribution of education to economic growth. Thus, migration affects the Caribbean countries’ ability to generate economic growth and jobs.”

The IDB study pegs the combined impact of this ‘brain drain’, plus the money spent on these Bahamians’ education, at 4.4 per cent of GDP. With Bahamian GDP currently estimated at around $8 billion, the ‘dollar value’ of that 4.4 per cent is around $350 million.

The Bahamas, though, is far from alone in the ‘brain drain’ problem. And, in comparison to regional peers, it is among those that suffers the least loss, only Surinam (at 48 per cent) losing fewer of its tertiary-educated workers.

In contrast, Jamaica and Guyana both see more than 85 per cent of their college/university graduates migrate abroad for work. And the Bahamas also suffers the least loss in terms of GDP impact and the number of secondary school graduates (10 per cent) who head abroad seeking work.

The IDB study gives no explanation as to why 61 per cent of Bahamian tertiary graduates head abroad, although the likely reasons include the fact many of them stay overseas when their college degrees are completed; the narrowness of the Bahamian economy and opportunities at home; and a lack of information about openings in the Bahamas.

Still, the findings have worrying implications for the Bahamas, as they indicate an entire generation of entrepreneurs and top-level managers may be heading abroad, never to return. And with Baha Mar set to create 5,000 extra jobs, and other major investment projects coming on stream, this nation needs all the top-quality labour it can get.

To reinvigorate Caribbean economies, the ID study suggested they “reorient trade in goods and services towards growing niches”, namely faster-growing countries with rapidly expanding middle classes.

Taking Brazil as an example, the authors suggested that had it been the Bahamas’ main trading partner during the 2008-2012 recession, this nation would have seen a 4.5 percentage point difference in its annual growth level.

“The average increase in annual growth during the Great Recession would have been 2.1 per cent for the Bahamas,” the IDB study said. “Over the next six years, the simulation exercise shows that the increase could reach 0.8 per cent for the Bahamas.”

The Bahamas is currently targeting Brazil for increased financial services, trade and tourism business, and the IDB study suggested that instead of an average 0.4 per cent GDP contraction in 2008-2012, this nation could have enjoyed a 1.68 per cent growth rate had the Latin American state - not the US - been its main trading partner.

And, in the same scenario for 2013-2018, the authors project that the Bahamas would enjoy a 2.88 per cent average GDP growth rate instead of 2.3 per cent. Per capita would also be slightly higher by around $200 per person.

Noting just how badly the Bahamas was impacted by the 2008 recession, the IDB study said this nation collectively lost 40 per cent of its GDP between 2008-2012, based on 2007 growth levels. Only Trinidad fared worse.

And the authors also added their voices to those expressing uncertainty over whether Baha Mar would grow or split the high-end visitor market with Atlantis come 2015.

“The total investment in Baha Mar is estimated to be about US$3.5 billion, and the hotels in the development are expected to increase the number of available hotel rooms by 2,000,” the IDB study said.

“However, being successful will require a substantial increase in the airlift to the island, plus a policy of diversification of tourist source countries such that the Baha Mar represents additional tourism rather than a diversion from the existing hotel complex, Atlantis.”

The IDB report also warned that economic growth and competitiveness in the Bahamas and wider Caribbean was being undermined by “special interest groups”, who were using “rent seeking” and other tactics to redistribute social wealth.

“By enlarging their slice of the pie (real GDP), these interest groups reduce the enlargement (economic growth) of the total pie, which in turn reduces total social gains,” the IDB study said. “This happens by influencing policy.”

Small, stable Caribbean societies such as the Bahamas fostered the creation and embedding of these “growth-retarding special interest groups”, it argued.

As a result, there is “a lower level of public trust of politicians, more unproductive rent-seeking, and a greater degree of wastefulness in government spending.

“Government officials engage in more diversion of public funds, show greater favouritism, and Caribbean businesspersons make more irregular payments and bribes. The only area where Caribbean tourism-based countries are at the same level as their [small island states]counterparts is judicial independence,” the IDB study said.

“Thus, the very feature that the Caribbean is proud of - political stability -may have created the conditions for and sustained an alliance against growth. In other words, Caribbean states are good for (some) businesspersons but not necessarily good for business.

“Thus, the difference in growth between Caribbean countries and other small economies could be due to Caribbean governments not being as good for business.”

June 16, 2014

Tribune 242

Eliminating waste and inefficiency in government spending ...together with a combination of revenue reforms and economic growth ...is the only solution to The Bahamas’ fiscal predicament

Reforms Must Tackle 'Mind Boggling' Waste

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

“Mind boggling” waste in the public sector must be tackled as part of a three-pronged solution to the Bahamas’ fiscal imbalances, a leading businessman asserting that Value-Added Tax (VAT) was not the solution by itself.

Franklyn Wilson, the Arawak Homes and Sunshine Holdings chairman, told Tribune Business he was recently informed of “nine-figure expenditure” by a government-owned utility in the Family Islands that was “just waste”.

The prominent businessman said that eliminating such waste and inefficiency in government spending, together with a combination of revenue reforms and economic growth, was the only solution to the Bahamas’ fiscal predicament.

And, while the Christie administration and private sector appeared to be far apart over the proposed VAT, Mr Wilson said he was “optimistic” the optimum solution could be reached.

He based this on the joint statement issued recently by the Coalition for Responsible Taxation (private sector) and Ministry of Finance, describing it as “one of the most significant developments that have taken place in governance in the country for the last several year”.

Mr Wilson said both sides had agreed inaction on the Bahamas’ worsening fiscal position was “not an option”, meaning there was broad-based support for public finance reform - the only outstanding questions being ‘what’ and ‘how’.

And, with the Opposition Free National Movement (FNM) having indicated a willingness to work with the Government, Mr Wilson said the Bahamas now had “the best foundation” for reaching an outcome satisfactory to all.

However, Mr Wilson emphasised to Tribune Business that VAT was “not the only answer” to a national debt hovering at $5.5 billion, fed by a fiscal deficit projected to be $443 million for the 2013-2014 Budget year.

“VAT alone will not solve the problem,” the Arawak Homes chairman said. “The problem is too deep. We’ve waited too long and got to where we are too deeply.

“We need more government revenues, less government expenditure and more economic growth. We need those three things. No one source can do it.”

The Christie administration is seeking to increase government revenues by $500 million per annum by 2016-2017, with $200 million or 40 per cent of that sum coming from VAT.

The proposed new tax, the centrepiece of its fiscal reform, is expected to generate around $500 million in gross revenues, with roughly $300 million of that figure an ‘income substitution’, compensating for the drop in Customs tariffs/fees.

Noting that VAT was not going to close the Government’s $500 million ‘revenue gap’ by itself, Mr Wilson added: “Those who advocate improved controls on current collections, that’s an answer. That’s not an either/or; it is something that has to be done.”

He praised the Government’s efforts to improve the collection and enforcement of existing taxes, singling out real property tax in particular, despite the complaint from ‘current taxpayers’ about the amnesty programme being overly-generous.

Mr Wilson also ran his eye over suggested alternatives to VAT, especially the sales tax.

“As I understand it, the basic weakness of a sales tax, anyone who has been in Florida and been in so many merchant shops, they say that if you pay in cash they won’t charge you the tax,” he added.

“That tells you the problem with a sales tax: The enormous level of avoidance and evasion.”

Mr Wilson contrasted this with VAT which, by the nature of its ‘input credits’, created an audit ‘paper trail’ right the way through the supply chain that could be checked to determine whether the full amount of tax due was being paid.

Still, Mr Wilson agreed that all tax options had to be looked at for the Bahamas to make the correct decision on reform.

And he also urged the country to set aside ‘partisan politics’ in trying to combat wasteful government spending.

“I could tell you that someone was telling me, pointing out recently, the degree of waste at one government-utility corporation,” Mr Wilson told Tribune Business. “It’s mind-boggling.

“I don’t think anyone has consciously set out to do it. Someone could identify for me nine-figure money spent in one Family Island that was just waste.

“To do something about this, government expenditure, in terms of reducing waste, is something that will take a cultural change, mindset change, and is nothing to do with partisan politics.

“Politicians must shine a light on this thing, and it has to become part of the programme.”

Economic growth, fuelled by increased levels of foreign direct investment (FDI), was the third strand of Mr Wilson’s solution to a fiscal situation where the Bahamas’ debt-to-GDP ratio is steadily approaching the IMF’s 70 per cent ‘danger threshold’.

The Arawak Homes chairman praised the high level of debate over VAT as “unusual for the country”, and described it as both “wonderful” and “constructive”.

“I think the statement by the Coalition from the Chamber of Commerce and Ministry of Finance was one of the most significant developments that have taken place in governance in this country for the last several years,” Mr Wilson said.

The statement, apart from agreeing fiscal reform was needed, also established dialogue between the private sector and the Government, and “certain protocols” for information sharing.

And with alternative reform options being presented in the public domain, he added that the Ministry of Finance could now “respond intelligently” by pointing out weaknesses in these.

“The great thing is there is consensus that something needs to happen, government finances need to be reset,” Mr Wilson said.

“Doing nothing is not an option. That simple point is tremendous progress. This is the future of the country. This is why it’s so important we get this right.

“We have the Opposition prepared to work with the Government. A broad-based private sector group prepared to work with it. Surely that creates the best foundation to give us the opportunity to arrive at the best possible outcome.”

November 26, 2013

Tribune 242 

Caribbean Blog International

The Bahamas nears " the ranks of 'Third World' nations via the rapid rise in the national debt... ...with an International Monetary Fund (IMF) report warning that our nation's 57.6 per cent debt-to-GDP ratio has passed the threshold at which it will act as "a drag" on its economic growth

Debt 'Pushing Bahamas' Deeper Into Third World


By NEIL HARTNELL

Tribune Business Editor

THE Bahamas has "pushed ourselves further into" the ranks of 'Third World' nations via the rapid rise in the national debt, with an International Monetary Fund (IMF) report warning this nation's 57.6 per cent debt-to-GDP ratio has passed the threshold at which it will act as "a drag" on its economic growth.

James Smith, a former Central Bank governor and now-Ministry of Finance consultant, told Tribune Business that the Bahamas had "dug ourselves a hole" with a national debt projected to hit $4.613 billion by end-June 2012, adding that its fiscal woes were begin to resemble "more and more" those of its many troubled Caribbean neighbours.

As he acknowledged that it would be "very difficult" to get the Bahamas' fiscal deficit and national debt back on to a sustainable trajectory, Mr Smith's comments were given further credence by an IMF paper, published on Friday, which showed this nation's debt-to-GDP ratio was now likely to 'drag down' its economic growth.

The paper, Threshold Effects of Sovereign Debt: Evidence from the Caribbean, analysed the Bahamas and 12 other regional nations, and found that above a 55-56 per cent debt-to-GDP level, any further increase in that ratio would impede economic growth.

The Bahamas, which is projected to have a total debt-to-GDP ratio of 57.6 per cent by month's end, according to government statistics, has already breached that barrier.

"The main finding is that there exists a threshold debt to GDP (GDP) ratio of 55-56 per cent," the four authors of the IMF paper found. "Moreover, the debt dynamics begin changing well before this threshold is reached.

"Specifically, at debt levels lower than 30 per cent of GDP, increases in the debt-to-GDP ratio are associated with faster economic growth. However, as debt rises beyond 30 per cent, the effects on economic growth diminish rapidly.

"And, at debt levels reaching 55-56 per cent of GDP, the growth impacts switch from positive to negative. Thus, beyond this threshold, the debt becomes a drag on growth."

Tackling the rapid rate of increase in the Bahamas' fiscal deficit, projected to hit a record $550 million under the GFS measurement during the 2012-2013 fiscal year, and the national debt could arguably be the Christie administration's greatest challenge over the next five years.

But, beyond some revenue enhancement measures largely left in place by the former Ingraham administration, pledges of tax reform and efforts to get the private sector going, it has yet to lay out a clear strategy for containing the fiscal deficit and national debt.

"The trend is still very worrisome," Mr Smith conceded, "because it's very difficult once you've let the horse out of the barn. It's very difficult to get it back".

He argued that the projected $550 million fiscal deficit for 2012-2013 was largely "a catch up from all the expenditure that has taken place", meaning it has resulted from extra debt servicing and spending commitments made by the former Ingraham administration.

"You couldn't even roll it back," Mr Smith added. "If you stopped everything, it would be more costly and would put a brake on what little growth there is.

"There's going to be no quick turnaround, as the world economy is still sluggish. By and large we have dug a hole for ourselves."

The former finance minister and Central Bank governor told Tribune Business that it was "a fair assessment" to argue that the Bahamas' fiscal predicament was due more to spending increases, particularly on the Government's recurrent or fixed costs, as opposed to the revenue side of the equation.

"In the last year or so we seemingly outspent the fall off in revenues, and from a policy perspective we should have been holding back when we realised we were not emerging from recession, at least not at the pace the US was," Mr Smith said.

A report by the United Nations' Economic Commission for Latin America and Caribbean (ECLAC), released on Friday, blamed the Bahamas' 2010-2011 nominal fiscal deficit of 4.7 per cent on spending increases that outstripped a 10 per cent rise in revenues to a sum equivalent to 17.7 per cent of GDP.

"The improved revenue was offset by a substantial nominal rise in expenditure to 22.9 per cent of GDP," the ECLAC report noted.

"Current expenditure reflected a sharp increase in payments for goods and services, and higher debt interest payments as government borrowing mounted. Growth in capital expenditure more than doubled with major investments in road infrastructure and in the airport expansion project."

Mr Smith, meanwhile, told Tribune Business that the Bahamas effectively needed an 'out of the box' game changer, something not associated with its traditional industries, to reverse the decline.

"We need some kind of external something we didn't plan for to get us quickly out of this," he added. "The things that we can predict, nothing seems to give us the sufficient impetus that we need in the short-medium term.

"We're beginning to look more and more like the rest of the Caribbean," Mr Smith told Tribune Business, referring to the likes of Barbados, Jamaica and St Lucia, all with debt-to-GDP ratios of around - or above - 100 per cent.

"We've been trying to pull ourselves so hard out of the Third World, but seem to have pushed ourselves further in. It's really going to take a combined effort - the labour has got to become more productive, the investment support machinery has got to be more efficient. We've simply got to work a lot harder as a country. It's not business as usual."

The bulk of Bahamian GDP was derived from tourist spending, but Mr Smith questioned whether US visitors - who still account for over 80 per cent of stopovers - would return to pre-recession spending levels even if there was recovery at home.

"We don't have the level of tourist expenditure needed to support increased GDP growth," he added. "To the extent that we are using subsidies to the tourism sector in terms of assisting the hotel industry, the likes of Companion Fly Free, we are actually getting less spending per tourist dollar, as we are actually paying to get them here. We're not getting the same bang for the buck."

The authors of the IMF paper urged the Bahamas and others above the 55 per cent debt-to-GDP mark to "adopt policies that do not impede growth" by setting the ratio on a downward trend.

Acknowledging that it was difficult for the Caribbean to embark on fiscal consolidation, given the recession's hangover and high unemployment levels, the IMF paper urged governments to combine with the private sector to "present more innovative ideas, and rehash some of the current policies for the region:".

The authors, for instance, called for "greater progress" in sectors such as information technology and renewable energy.

June 18, 2012

Tribune242

Caribbean Blog International

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."

Now May Be a Good Time to Ease the Tight Credit Controls on Commercial Banks In The Bahamas

The restrictions on domestic banks in The Bahamas were put in place to protect the country’s foreign reserves from being depleted, according to the governor

Governor Hints That Lending Controls Will Soon Be Lifted

By Candia Dames

Journal Staff Writer

candiadames@hotmail.com

Nassau, The Bahamas

06/07/04

The restrictions on lending imposed by the Central Bank more than two and a half years ago are likely to be lifted some time this year, Governor Julian Francis hinted Sunday.

Mr. Francis, who appeared on the Radio Love 97 programme “Jones and Company”, was asked to respond to a suggestion made by the Prime Minister in his recent budget communication that now may be a good time to ease the tight credit controls.

“These controls were meant to avoid the economy from overheating at a time when the conditions around us on the outside have not been strong,” he said.  “That’s been the whole purpose of these controls and I personally believe…we’re very close to that period being over.”

The restrictions prevent commercial banks from lending more money than they are collecting in loan repayments.  As a result, some bank executives say there is a whole lot of money that they are being restricted from lending and their profits are suffering.

The restrictions were put in place to protect the country’s foreign reserves from being depleted, according to the governor.

Mr. Francis also pointed out that the controls were imposed at a time when the United States economy was going into a recession, but he said there have been clear signs that the U.S. economy is on its way to full recovery.

“We haven’t in all respects began to feel the full effects of that,” he said.  “The Bahamas economy is absolutely on the way back and generally speaking we expect, for example, that during the course of this year that the economy will experience growth of something like two and a half to three percent on average.”

Mr. Francis said this level of growth has not been felt in any great way during the first half of 2003, but it is expected to become evident during the latter half of the year.

“We’ve said for the last three or four months that as soon as it is clear and we are satisfied that the recovery is on the way and on track, we will be looking at how to lessen the restrictions which have been put on the banking system or removing them altogether,” he said.

“We’ve said that on a number of different occasions and we have monitored this on a monthly basis.”

He recognized that the government would like to see the controls lifted as soon as possible because it has implications for the expansion of the economy as well as for government revenue.

“The Central Bank is entirely sensitive to that issue and I can tell you that our position has been that within our meetings deliberating on this, that we would not delay more than is absolutely necessary once we are satisfied that the conditions are right for removing the restrictions,” Mr. Francis said.

But he cautioned that lifting the restrictions will not result in an automatic economic boom.

“The economic activity which is internally generated is limited and it’s not entirely true to think that by expanding credit you’re going to create any particular level of economic activity,” the governor said.  “The stimulus from our economy comes from the outside.”

Mr. Francis said the economy is about to enter a period of “very strong” growth that is being generated by various foreign investment projects.

“I firmly believe that the next five years in The Bahamas for this reason are going to be years of pretty strong growth and development,” he said.

The show’s host, Wendall Jones, then asked, “So, we’re entering a period of boom?”

Mr. Francis said, “I think in many ways, quite possibly, we are.  I don’t yet know if boom is the way to describe it, but I think we’re talking about a period of fairly strong growth.  I think it’s a good opportunity to do some of the things that we want to do.”

For example, he suggested that now may be a good time to downsize the public service and make it more efficient, given that many jobs will soon become available in the private sector.

“We have an opportunity to make these kinds of hard decisions,” Mr. Francis said.  “You can do these things when times are good.  It’s when times are difficult and bad and jobs are hard to come by that it’s difficult to make these kinds of reforms.”

FNM 2007

FNM Launches “Restoration 2007”

By Candia Dames

candiadames@hotmail.com

Nassau, The Bahamas

Claiming that all the new jobs created since May 2002 were created by the Free National Movement, party leader Tommy Turnquest did what was expected last night – he slammed the performance of the Christie Administration, while again declaring it a “do nothing government.”

“The PLP is a government of show without substance,” said Mr. Turnquest, who brought the keynote address at a rally at the R. M. Bailey Park where he launched a campaign dubbed “Restoration 2007”.

“Let them know that thousands of Bahamians who get swing last time will pay the PLP back next election for their lies and empty promises,” he said.

The rally came one day after the Progressive Liberal Party Government observed its second anniversary in office, with Prime Minister Perry Christie declaring that he and his team remain on course.

Mr. Turnquest spent much of the time accusing the PLP of taking credit for the work he said was done by the Ingraham Administration.

Pointing to a number of resort developments on the Family Islands, including the much talked about Emerald Bay project in Exuma, Mr. Turnquest said the PLP “didn’t do anything to make any of that happen, just like they didn’t do anything to make Phase III of Atlantis happen.”

“All that was planned and approved by the FNM,” he said.  “The FNM built or caused all of them to be built.”

In recent weeks, the government has been boasting about its housing record, saying that the PLP built nearly 600 houses in two years, compared to the fewer than 800 houses built by the FNM in nearly 10 years.  But Mr. Turnquest sought to set the record straight.

“The PLP is building houses in existing subdivisions, many of which were planned and created by the FNM,” he said.  “They are building without building permits and are not providing parks, or open spaces or commercial areas like the FNM did.”

Free National Movement Chairman Carl Bethel, meanwhile, said the government fell far short of its projection for the rate of growth of the Bahamian economy last year.

“Despite the government’s promise of 2.5 percent economy growth for the last budget year, the latest figures from the IMF show that the Bahamian economy last year grew by 0.9 percent,” Mr. Bethel said.

During his budget communication last May, the prime minister actually said that the International Monetary Fund projected real economic growth of the Bahamian economy of 2.9 percent its April 2003 World Economic Report.

Mr. Bethel claimed last night that, “Last year, under the PLP The Bahamas had the worst economic performance of any comparable country in the Caribbean.”

He also claimed that the level of Net Foreign Investment in the Bahamian economy fell from $400 million left by the FNM in 2002, to only $200 million.

Mr. Bethel again attacked the quality of governance in the country, saying that under the PLP the country is beset by “bad government and laziness.”

“There is no money in the Treasury, and while the government is racking up a record-breaking budget deficit this year, the people who could have paid good money to ease that pressure have been giving a whopping tax cut,” he charged.

Mr. Bethel said certain real property exemptions granted under the PLP Administration will provide significant benefits for wealthy persons like those who live in the exclusive Lyford Cay community.

But on Sunday, while appearing as a guest on the Love 97 Programme “Jones and Company” Prime Minister Christie pointed to real property tax cuts as initiatives that have benefited Bahamians who need them most.

“We have given all first-home buyers exemptions from stamp duty on their homes up to $250,000,” Mr. Christie pointed out.  “We have eliminated real property tax for Bahamians up to $250,000…This has all proven already to have a direct positive impact.”

At the rally, Mr. Bethel also slammed the PLP on national security issues.

“The Police Force and the Defence Force are demoralized and unhappy,” he claimed.  “They are under-funded, under-equipped, under-staffed and under-paid.  The government does not seem to have any plan or strategic vision to develop and improve our armed and security services.”

He vowed that “when this one-term government is run out of office the FNM will aggressively grow the economy; attract real foreign investment, stimulate increased Bahamian investment and ownership in the economy, create jobs and empower Bahamians.”