The Bahamas Central Bank Governor, Julian Francis Contradicts Prime Minister Perry Christie on the Amount of the Nation's National Debt

The Central Bank Governor said that The Bahamas national debt is now around $2.4 billion, which is 42 percent of GDP.  But last week, the Prime Minister said the debt was just under 40 percent of GDP

The Governor of the Central Bank of The Bahamas Warns Also that The Bahamian Government Must Prevent A Fiscal Crisis Later - By The Containment  of The Country's National Debt Now

Bahamas Debt Warning Issued

By Candia Dames

Journal Staff Writer

candiadames@hotmail.com

Nassau, The Bahamas

06/07/04

Governor of the Central Bank Julian Francis on Sunday contradicted Prime Minister Perry Christie by revealing a level of debt that is higher than what the nation’s leader pointed to during the budget debate last week.

Mr. Francis also warned that the government must move now to contain the national debt to prevent a fiscal crisis in the future.

“We can’t continue to add to the national debt indefinitely,” said Mr. Francis, who was a guest on the Radio Love 97 Programme “Jones and Company”.

Mr. Francis said that the national debt is now around $2.4 billion, which is 42 percent of GDP.  But last week, the Prime Minister said the debt was just under 40 percent of GDP.

Countries that go beyond the 40 percent mark are considered to be entering the danger zone in terms of fiscal management.

Mr. Francis said, “So you can see, we’re already marginally above that number at 42 percent.  That doesn’t mean that all of a sudden we are bankrupt over night or anything like that, but it does mean that you don’t want to go much further than this.”

He pointed out that since 1984, the national debt has increased from 25 percent of GDP to the present figure of 42 percent.  This increase spanned three different administrations, he reminded.

“There is a tendency on the part of our country to accumulate debt in order to balance the budget of the government and what I am saying as the spokesperson for the Central Bank of The Bahamas is that this is getting to the point where we should not see this as a continuing option,” said the governor, who stressed that he was not attempting to create alarm over the situation.

He agreed with the Prime Minister that the national debt is less of a concern because most of the debt is domestic.

“I accept that idea,” Mr. Francis said.  “It would be of a much more important concern if it were substantially in foreign currency.”

With the budget debate ongoing, there has been much talk about the national debt and the projected deficit of $164 million.

“The fact that there is a deficit means that the government has to borrow to fund that deficit and any borrowings by the government have to be paid back at some point,” Mr. Francis said.

“What I am saying is that there is a point where we need as a people to recognize the fact that we’ve probably reached a level of borrowing that should not be too easily exceeded, except during very, very important emergencies,” he added.

While on the Sunday programme, Mr. Francis again highlighted the need for Bahamians to pay higher taxes.

It prompted the show’s host, Wendall Jones, to ask, “Do you think that it is proper for the Governor of the Central Bank to be making statements about the need to have an increase in taxes at a time when the Prime Minister and Minister of Finance has introduced a budget and has said that he is not going to increase taxes?  Isn’t that walking out of step with the Government of The Bahamas?”

Mr. Francis responded, “Well, no.  I don’t think so and I am sure that the government would agree with me on this.  The role of the Central Bank, which is an entirely professional institute, is to be a kind of monitor, in a way, almost a police on these kinds of issues.”

He added, “I have not sought and I don’t think that it is appropriate in fact to put myself at odds with the government on these kinds of issues, but it certainly does not prevent me – and I think that we have to be extremely careful about that.  If we get to the point where there can only be one view expressed, then I think it changes a bit the character of our country.”

Mr. Francis said his intension is not to criticize the government, but to sensitise Bahamians to the fact that there is no such thing as “a free lunch.”

“If we would like to have additional roads, hospital and schools,” he said, “we have got to be ready to pay for that.”

While expressing the need for a higher level of taxation, Mr. Francis also applauded the government’s efforts to improve its system of tax collection.

“You’ve got to collect what you can,” he said. “Don’t misunderstand me all.  I have absolutely nothing at all to say [against] the idea of being more effective in collecting taxes.  I think that is absolutely correct, but I don’t think that will cover the deficit.”

The Bahamas Government Declares Its Intention to Prepare a White Paper on Proposed Sweeping Reforms to the Nation’s Tax System

The existing tax regime can no longer serve the purpose of the expanding Bahamas 

Tax Review Nears Completion

 

By Candia Dames

Nassau, The Bahamas

May/24/04

 

 

 

The Government of The Bahamas intends to prepare a white paper on proposed sweeping reforms to the country’s tax system, according to Minister of State for Finance James Smith.

 

“The existing tax regime can no longer serve the purpose of the expanding Bahamas and I think it ought to be reformed to reflect the realities and one of those realities is that The Bahamas is essentially a service industry, yet we are getting most of our revenue from taxing goods,” said Minister Smith, who was a guest on the Love 97 programme “Jones and Company” Sunday.

He added, “We need a broader base tax for goods and services and this is something that I’ve been looking into, and will be looking into over the next two or three years if God spares my life - and if I am still in this position.”

Minister Smith said he is awaiting a report from a group of consultants, which is reviewing the tax structure and formulating recommendations for change.

The Value Added Tax (VAT) experts, from the U.K-based Crown Agents group, arrived in The Bahamas several weeks ago to carry out the review.

Minister Smith said VAT or GST (Goods and Services Tax) seems to be the logical form of taxation that the Bahamas should adopt.

In introducing a VAT, the government is likely to reduce some of the existing duty, he pointed out.

“So it would call for rate rebalancing because we have to recover [those funds] somewhere else,” Minister Smith said.  “So what we will do is broaden the tax base to include goods and services.  In that way, we can reduce the rate on goods and use a much smaller rate on services.  The Value Added Tax, if we go that way, also has provisions for tax credits.”

Everyone who is eligible to engage in this form of taxation would have to become registered taxpayers, he said.

Minister Smith explained that they would all have to have an independent tax number, probably tied to National Insurance, that identifies them straight across the board.

While noting that the government “is not re-inventing the wheel here”, Minister Smith also said “there is still a lot of work to be done.”

More than 100 countries use the Value Added Tax system.

Asked if there is a fear in raising taxes, Minister Smith said there is a belief among some people that the rate of taxes being imposed in The Bahamas are sufficiently high to do what the government has to do.

“However, the leakages are also so high that before we raise more rates or even enlarge the tax base, let’s make a really, really Herculean effort to see if we can plug those leakages and see exactly what is the maximum that we’re getting out of this.  Your first attack should try and stop as many leakages that you can.”

The 2003-2004 budget contained no new taxes, but a number of revenue enhancement measures, including a plan to plug leakages.

The budget also projected a deficit of $122 million, but Minister Smith has indicated that the deficit will be more than $30 million higher, given that the government paid out $24 million in unbudgeted salary increases for public servants.

A recent report from the Central Bank of The Bahamas indicated that the deficit at the end of this fiscal year is expected to be about $147 million.

But Minister Smith noted that in international terms, the country’s budget deficit is “not that huge.”

“The important thing about a deficit sometimes – more important than the size of it – is the direction of it,” Minister Smith explained.  “Are you doing anything to try and curb it because it means beyond a certain point you’d get in a sort of debt dynamics where it becomes even more difficult.

“It spins out of control and then you really have pressures to do some things that people don’t like – devaluations, cutbacks etc.  So, our deficit is manageable, but I think we need to continue to do things to stop it from growing.”

He also commented on the National Debt, which, according to the Central Bank stood at $2.369 billion at the end of 2003.

“Right now, The Bahamas is in an envious position in terms of its debt,” Minister Smith said.

He pointed out that about $1.7 billion of the debt is domestic – with a substantial portion of that being owed to government-related entities.

“So if [we] run into a difficulty and [we] have to reschedule, it would not be difficult to do because [we] would be dealing with local institutions,” he said. “We go further south in the Caribbean and we’d find countries where 80 percent of the debt is foreign and [they’re] really in trouble.”