An International Caribbean Online Log about the news and opinions in the Americas and World.
This Caribbean Blog of global reach and appeal is maintained by Bahamian Blogger - Dennis Dames with all readers and subscribers in mind.
Google Ads
Showing posts with label Bahamian economy. Show all posts
Showing posts with label Bahamian economy. Show all posts
The Bahamas is grappling with a substantial national debt that is above 100% of GDP
A Debt Pitfall
By Dr. Kevin Turnquest-Alcena Nassau, The Bahamas
"Deo adjuvante,non timendum" "with God as my helper,I have nothing to fear "
To fully assess the financial challenges facing The Bahamas, we must learn from countries like Argentina, Jamaica, Zimbabwe, and Venezuela, all of which suffered economic crises due to unsustainable debt and currency devaluation. The Bahamas must be cautious with its public finances to avoid similar pitfalls.
With the Bahamas' current debt at $11 billion and a debt-to-GDP ratio exceeding 100%, we are at risk of entering a debt trap. Lessons from other countries show that failure to manage debt and implement necessary reforms can lead to economic instability, inflation, and currency devaluation.
The IMF has warned about The Bahamas' rising debt and recommended measures such as economic diversification, improved tax compliance, and controlled public spending. To prevent financial collapse, we need to ensure borrowed funds are invested productively, and strategies must be based on accurate, empirical data.
1. Bahamian Debt Levels (2023):
- According to the International Monetary Fund (IMF),the Bahamas' public debt was around 102% of GDP at the end of 2022. The IMF continues to express concerns about the nation’s fiscal trajectory if corrective reforms are not implemented.
- The Bahamas Ministry of Finance released an update stating that as of mid-2023, the country’s debt reached approximately $11 billion, a substantial figure for a small economy. This includes external debt and domestic borrowing.
2. Debt to GDP Ratio:
- The debt-to-GDP ratio has been hovering above the critical 100% mark, which signals high vulnerability in terms of debt sustainability. Many countries face economic instability when their debt exceeds their GDP, making it harder to service debt without growing the economy or reducing deficits.
3. Recent Borrowing and IMF Support:
- The Bahamas has received financial assistance from various international organizations, including the IMF, during the COVID-19 pandemic. This support aimed to stabilize the economy during the collapse of tourism, which constitutes a significant portion of the nation's revenue.
- The IMF’s 2023 Article IV Consultation on The Bahamas stresses that the country still faces significant fiscal challenges, and while the tourism sector is recovering, the public finances are far from sustainable. Recommendations include diversifying revenue sources and structural reforms to curb public spending.
4. External Debt:
- The external debt of The Bahamas accounts for a significant portion of its overall debt, with borrowing from multilateral institutions and private lenders. External debt servicing remains a concern given the currency peg and dependence on foreign reserves to maintain it.
5. Fiscal Outlook:
- Both the IMF and Bahamian government stress that while the short-term recovery appears promising due to the return of tourism, without structural fiscal reforms, such as tax reform or expenditure cuts, the country’s debt levels could lead to long-term financial instability.
In summary, The Bahamas is grappling with a substantial national debt that is above 100% of GDP, with external borrowing playing a major role. The reliance on tourism for revenue, coupled with ongoing fiscal deficits, exacerbates the risk of unsustainable debt levels unless structural economic reforms are enacted.
References:
• [IMF Bahamas 2023 Article IV Consultation Report] (https://www. imf.org/en/Publications/CR/Issues/2023/02/07/The-Bahamas-2022-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-528453)
• Bahamas Ministry of Finance Debt Update (2023)
• Central Bank of the Bahamas Reports (2023) on fiscal trends
The transformative impact of a gold and diamond exchange in The Bahamas
Opportunity for Gold and Diamond Exchange for The Bahamas
By Dr Kevin Turnquest-Alcena
Nassau, The Bahamas
In the heart of the Caribbean, The Bahamas stands poised to transform its economy through the liberalization of its gem and precious metals sector. The country, renowned for its stunning natural beauty, is on the cusp tapping into a rich vein of economic potential. This article explores the transformative impact that a reimagined gold and diamond exchange could have, creating jobs and ushering in a new era of prosperity.
Andre Rahming, a leading figure in Bahamian gemology Legislation, has been instrumental in charting a possible future for the country's gem and precious metal industries. His advocacy for establishing a precious metal commission to oversee this transformation underscores his commitment to harnessing these untapped resources responsibly and profitably.
Current Landscape: Overcoming Regulatory Hurdles
Despite its independence, The Bahamas grapples with outdated trade policies that curb its economic progress. The stringent government exchange controls, coupled with complex banking requirements such as KYC protocols, impede both local entrepreneurs and international investors. Notably, the country's reliance on archaic systems does little to foster a robust entrepreneurial environment which is critical for economic diversification.
Propelling Forward: The Need for Reform
To realize the full potential of the gem and precious metals sector, The Bahamas must reform its regulatory framework. Abolishing restrictive exchange controls and simplifying the banking process are essential steps toward creating a conducive business environment. By looking at successful models in Botswana, the UK, Israel, the UAE and Belgium, where regulatory reforms have spurred economic growth, The Bahamas can develop a blueprint for success.
Job Creation and Economic Stability
By opening the gold and diamond exchange, we anticipate the creation of over 7,000 jobs, significantly reducing unemployment and increasing the standard of living for many Bahamians. These jobs are not just numbers; they represent skilled positions offering sustainable livelihoods across the archipelago.
Proposed Framework: Establishing a Precious Metal Commission
One critical proposal is the establishment of a Precious Metal Commission, tasked with oversight and strategic development of the gem and precious metals sector. This body would ensure that the industry grows in a controlled, ethical manner that benefits all Bahamians without causing ecological damage or exploiting local communities.
Global Engagement: Enhancing International Relations
Modernizing trade policies will also enhance The Bahamas' international relations, positioning it as a significant player in the global market for gems and precious metals. This shift could attract foreign investment and foster partnerships, further enriching the nation’s economic landscape.
Overview of Current Trade Policies
Presently, The Bahamas maintains a conservative approach towards the trading of gems and precious metals, with stringent regulations rooted in a bygone colonial economy that limit the potential for market expansion and economic diversification.
Purpose and Scope of the Article
This analysis aims to advocate for a more open trade policy in The Bahamas, drawing parallels with global success stories to underline the anticipated economic and social benefits. We will journey through historical, current, and future vistas, identifying challenges and framing strategies for a flourishing trade environment.
Historical Context and Current Constraints
Colonial Legacy and Economic Policies
The Bahamas' trading policies are greatly influenced by its colonial history with Britain, marked by conservative economic approaches that now challenge the pace of modernization and globalization in its market strategies.
Current Legislation on Gems and Precious Metals
Under the current framework, the trade of precious items is tightly controlled, with heavy duties and rigorous processes that inhibit the growth of the local market.
Challenges Under Current Trade Regime
• Limited Market Access: Restrictive policies prevented Bahamian traders from accessing larger, international markets.
• Reduced Competition: High barriers to entry discourage new players, limiting competition and innovation.
• Export Inefficiencies: Cumbersome procedures complicate the export process, making it less competitive on the global stage.
Case Study: India and Similar Countries
Open Trade Policies in India
India's liberal trade policies in gems and precious metals have positioned it as a global leader in these sectors. The government’s supportive measures include lower tariffs and fewer trade restrictions, fostering an environment ripe for growth.
Economic Benefits Realized by India
The sector’s liberalization has propelled economic benefits, with substantial increases in employment and contributions to the GDP.
Comparative Study with Other Countries
Countries like the UAE and Belgium also demonstrate how liberal trade policies can catalyze sector-specific and broader economic growth.
Proposed Benefits of Open Trade for The Bahamas
Economic Growth and Diversification
Open trade could diversify the Bahamian economy beyond tourism, tapping into the lucrative global market of gems and precious metals.
Job Creation and Skill Development
This policy shift would not only create jobs but also offer numerous opportunities for professional development in gemology and metallurgy.
Enhancement of International Relations
Liberalizing trade policies could enhance The Bahamas' position on the world economic stage, fostering better international relationships.
Challenges and Mitigation Strategies
Potential Risks Involved with Open Trade
• Economic Vulnerability: Increased exposure to global market fluctuations.
• Socio-political Concerns: Changes in trade policies might provoke resistance from traditional sectors.
Regulatory Framework Suggestions
A robust regulatory framework can mitigate these risks, ensuring that the expansion of trade is both sustainable and beneficial.
International Cooperation and Aid
Partnerships with international trade bodies could provide the necessary support for smooth policy transitions.
Conclusion: A Path Toward Prosperity
The path to revitalizing the Bahamian economy through a thriving gold and diamond exchange is fraught with challenges but brimming with potential. It requires bold leadership, like that shown by Andre Rahming, and a clear commitment to regulatory reform. By seizing this opportunity, The Bahamas can secure a prosperous and stable economic future, ensuring that its greatest gems aren't only found beneath the waves but in thriving markets and prosperous communities across the nation.
In reassessing its trade policies on gems and precious metals, The Bahamas stands on the cusp of economic transformation. Moving beyond colonial legacies and adopting a global economic model could usher in an era of prosperity previously unimagined.
Call to Action for Policy Makers
It's time for The Bahamas to boldly embrace change. Let's pave the path towards economic diversity and richness, ensuring a brighter future for generations to come.
The Bahamas Ministry of Economic Affairs Launches First-Ever National Trade Policy
The New Bahamas Trade Policy is intended to lower trade deficit and empower local Bahamian businesses
After years of stakeholder consultation and collaboration with local and international experts, the Government of The Bahamas has launched the National Trade Policy, an initiative that has been spearheaded by the Ministry of Economic Affairs.
The National Trade Policy was formally unveiled at a press conference hosted by the Ministry of Economic Affairs on Thursday, 25th of May, 2023. At this press conference, members of the media were afforded the opportunity to hear from the Minister of Economic Affairs, Senator, the Hon. Michael Halkitis, Bahamas Trade Commission Chairman, Philip Galanis, and other technical experts who highlighted the work that went into crafting the policy, as well as the impact it is projected to have.
Minister Halkitis stated that the primary objective of the national trade policy is to tap into the unexplored areas for the international trade of goods and services where there is vast potential for Bahamian businesses to benefit.
He noted that this policy will supplement the economic development and diversification initiatives that the Davis administration has taken on since taking office.
“The National Trade Policy is a key component of a wider developmental strategy to diversify the economy, empower Bahamian businesses domestically and internationally, and lower the trade deficit. Key areas that are being targeted by the government, such as niche agricultural and fisheries products, uniquely Bahamian crafts, food, and goods, and green, blue, and orange economy products and services will all benefit from this policy.”
Acknowledging the calls by local businesses for greater ease in conducting international business and exporting goods and services abroad, Minister Halkitis said that the National Trade Policy will help to facilitate the import and export of in-demand goods and services, ushering in a new era for trade in The Bahamas.
“We know that many businesses have called for the government to reform existing processes to make exporting their products more seamless. Through this policy, we believe that we have put the right mechanisms in place. We will expand awareness through stakeholder education to arm local businesses with everything they need to expand their customer base beyond the borders of The Bahamas.”
As the policy moves from the development phase to the implementation phase, Minister Halkitis noted that the government will continue to keep its ears open to local businesses and its eyes open for international opportunities.
“The policy we have before us today is the product of continuous stakeholder engagement. We have incorporated much of that engagement to ensure that the policy before us today is as strong and comprehensive as possible. As we implement the policy, the key is to remain agile and open to ways we can continue to strengthen the policy in response to local needs.”
Minister Halkitis encouraged all local businesses and aspiring entrepreneurs who are interested in engaging in international trade to stay tuned as the government continues to engage with the local business community to empower businesses of all sizes to take advantage of the new national trade policy framework.
“Ultimately, the true measure of the effectiveness of this policy lies in its ability to empower Bahamian businesses, lower the trade deficit, and contribute to the creation of a more resilient and diverse economy. We encourage all businesses to get informed and get involved.”
Any business owners who wish to learn more about the National Trade Policy can download a full copy of the policy document at https://moea.gov.bs/the-bahamas-national-trade-policy.
An Inter-American Development Bank (IDB) study has shown that Value-Added Tax (VAT) will have a “positive” impact on the Bahamian economy’s growth and employment prospects in the medium-term, a senior official said last night.
John Rolle, the Ministry of Finance’s financial secretary, said that despite the IDB study being incomplete, the ‘preliminary results’ showed the Government’s tax reform centrepiece would also result in reduced inflationary pressures.
“While the IDB study is ongoing, we have seen the preliminary results, which attest to the projected positive economic impact of the fiscal reforms (growth and employment over the medium term), and to the reduced inflationary pressures to which the budgetary consolidation would contribute,” Mr Rolle told Tribune Business.
“Additional historical data is being added to the economic model, which will allow the researchers to fine-tune their results. Afterwards the results of the study will be published.”
Mr Rolle was commenting after the IDB used its October quarterly bulletin on the Caribbean to confirm it is working with the Government on implementing VAT in the Bahamas. It said its study on the new tax’s impact on the economy and wider society was only “underway”.
“The IDB has been working with the Government of The Bahamas to assist with Value-Added Tax (VAT) implementation,” the Bank’s October missive said.
“Using an econometric model, the IDB has provided specific input on the effects of the changes in revenue of the proposed VAT rates and the base on which the VAT will be charged.
“An economic impact study that assesses the effect on prices, economic growth, poverty and income distribution is currently underway. Consultations on the creation of the Central Revenue Agency, which will administer the VAT and select the IT system, are currently underway.”
Despite Mr Rolle’s assurances, the IDB’s comment is still likely to raise eyebrows in the private sector, as it indicates that the true ‘number crunching’ on VAT’s impact on the wider Bahamian economy and society has yet to be completed, and with implementation of the new tax now less than eight-and-a-half months away.
It is also unclear whether the Government internally, via the Ministry of Finance, has completed ‘VAT economic impact’ studies of its own, or whether this work has been done by other agencies, such as the International Monetary Fund (IMF, or external consultants.
A Ministry of Finance press statement earlier this year referenced work done by the IMF and its regional affiliate, CARTAC, on a Bahamian VAT, although no specifics about the nature of their work were released.
One observer who raised such questions was Rick Lowe, an executive with the Nassau Institute economic think-tank, whose own study on VAT’s likely impact on The Bahamas has been belittled by various government officials.
Suggesting that the Government’s moral authority to do this was diminished by the absence of any completed studies of its own, Mr Lowe argued that the burden of VAT collection/administration was being placed on those companies that were already 100 per cent compliant with their taxes.
And, noting the contents of the 2010-2011 Auditor General’s Report, which found that another $95 million in unpaid real property tax was added to the existing ‘sum owing’, taking this to over $500 million, Mr Lowe questioned how the Government expected to collect everything due to it under a VAT.
“It’s a basket case, it really is,” Mr Lowe told Tribune Business. “How do we expect to implement a more convoluted tax system if we can’t administer the basics?”
He added that the experience of other countries that had implemented VAT was that new taxes did not stop there, often being followed by income taxes and other revenue-raising measures.
“It’s a never-ending way to tax people,” Mr Lowe added. “It’s the thin end of the wedge. If we’re not capable of collecting basic taxes, heaven knows, not to mention the underground economy.”
He added that VAT would likely drive more Bahamians to online shopping and trips to Miami, and said of the IDB’s comments on the economic impact study, or lack of it: “How can they [the Government] stand up there and berate anyone who has concerns based on the impact of VAT on other countries in the region, and they’ve not done a study yet? It speaks volumes.
“They berate anyone who stands up and raises questions, and those questions result from government’s lack of information. We’re beeped down as if we’re dummies.
“They’ve [the Government] been forging ahead as if it’s a fait accompli, and haven’t done a cost benefit analysis. Have they considered the impact on businesses close to the edge? Obviously they haven’t. Is it going to destroy the economy and they get less revenue? Is that the Government’s intention?
“If they haven’t done the basics yet, how can they just think they can throw their hands up and say: ‘We can take more money from the citizens?’ It’s unconscionable. I weep for our country.”
Questioning why the Government had allowed “this large swathe” of non-real property tax payers to exist, Mr Lowe said VAT would impose an even greater tax burden on those who were already paying their bills.
“To say we can’t collect the taxes already on the books, and to tax more people who legally do what’s right and pay the taxes they ought to pay, something’s wrong with that reasoning,” he added.
AGAINST the backdrop of this year's post-election budget debate in Parliament, we thought it would be useful to look at how our economic circumstances have evolved over the past decade.
May 2001
When the first Ingraham administration tabled its final budget, Finance Minister Sir William Allen talked about containing the demands of inefficient, money-wasting state corporations like Bahamasair and ZNS.
He deplored the three-year delay in divesting BTC, which he attributed to the sorry state of the corporation's accounts - meaning it had been allowed to operate incompetently for decades.
But the future looked bright. The Bahamian economy had grown by 5 per cent in 2000, with more of the same projected for 2001. And the government debt-to-GDP ratio was about 30 per cent ($1.5 billion), considered sustainable by most economists.
"The declining debt and lower interest rates have reduced the cost of debt servicing," Sir William said. "Unemployment has been reduced to the lowest levels ever recorded (6.9 per cent), living standards are approaching those of the advanced OECD countries, and Bahamian society is prepared to meet the future with greater certainty and confidence than ever."
There were certainly achievements to brag about. An overall budget balance had been recorded for the first time since the early 1970s, and Allen was predicting that fiscal imbalances would become a thing of the past.
But that optimism was fleeting. Within months, the deadly terror attacks on New York and Washington produced panic in the US and sparked a worldwide recession that halved global economic growth. A sharp fall-off in travel forced The Bahamas to take emergency fiscal measures.
May 2002
So Perry Christie was able to say when he took office in 2002 that he had inherited a big deficit. His new government stressed the importance of containing public debt so that the country's limited resources could be applied more productively.
In the wake of the 9/11 attacks, State Finance Minister James Smith warned that revenue losses and emergency spending, combined with the demands of the loss-making public corporations, were straining the country's resources. And the government promised to complete the sale of BTC by 2003 at the latest.
May 2004
By the middle of his term in office, Christie was decidedly more upbeat. The impact of 9/11 on tourism had been short-lived, Sol Kerzner was investing a billion dollars to expand Atlantis, and the credit boom underway in the US was having a marked spillover effect on the Bahamas.
Although the administration promised to reduce government debt (which now topped $2 billion) to that 30-per-cent-of-GDP sweet spot, this time there was no talk about containing the demands of state corporations. And when Christie left office three years later, the BTC privatisation process was still in limbo - a full decade after it had been launched.
May 2006
As you might expect in what was to be his last year in office, Christie presented a grandiose budget in 2006-07. He talked about transforming the tourism and transportation sectors of New Providence, restoring Grand Bahama's prosperity, ending poverty, and getting crime and illegal immigration firmly under control.
"We have secured the future economic prospects of The Bahamas," he declared, "which are unrivalled in this region and without precedent in the economic history of our country...a scale of inward investment without parallel anywhere in the world..the economy has reached take-off point into what could be the longest, highest and most sustainable expansion of our history."
But ironically, and little noticed at the time, storm clouds were already gathering. Oil prices were about to spike, but energy was simply not on the government's radar. And the housing bubble in the US would soon burst, leading to an unprecedented global financial crisis with severe and long-lasting consequences for the Bahamas.
May 2007
When the FNM returned to office, they appeared to sniff the approaching storm. Hubert Ingraham tabled a balanced budget and promised to eliminate the deficit within five years, in the process bringing government debt down from over 37 per cent of GDP to around 30 per cent.
When Ingraham regained office, the total public debt (i.e borrowings by both the government and state corporations) was $2.9 billion, having grown by $656 million, or 29 per cent, during the Christie administration. At that time, the country was paying an overall interest rate of 7 per cent on borrowed funds, and servicing this debt was costing more than $141 million a year.
"It is crucial that we move quickly to reduce the ratio of debt to GDP and not allow it to drift upwards as it has in recent years," Ingraham said at the time. To do this, the government planned to rely on improved revenue collection and projected growth of more than 4 per cent.
Although state corporations were not mentioned in that budget communication, for the first time energy was a talking point. The government announced a review of alternatives to fossil fuel imports for electricity generation - including solar, wind and wave energy technologies - and set about formulating a national energy policy.
May 2008
But the FNM's honeymoon was brief. By early 2008 the prospect of a deep global recession was looming, as financial markets came under increasing stress. In the second budget of his new term, Ingraham pointed to economic uncertainty and spiralling energy costs as major factors in the government's decision-making.
With the economy suffering "severe setbacks" from the credit crunch and from the surge in energy and food prices, the government sought to provide a targeted fiscal stimulus as unemployment began to rise. A $100 million loan from the Inter-American Development Bank was also secured to complete the much-delayed New Providence Road Project.
And all the loss-making state corporations were still receiving big subsidies - $28 million for Bahamasair, $22 million for Water & Sewerage, and almost $12 million for ZNS. As fuel prices reached record highs, BEC's financial position worsened, and it was exempted from paying import duty on fuel, further impacting the government's finances.
In September, the giant Lehman Brothers investment bank collapsed, sparking a panic in the financial world. It was a seminal event that dramatized the severity of the Great Recession, which had actually begun in late 2007. The fallout shrank the Bahamian economy by 1.5 per cent in 2008.
May 2009
The following year's budget acknowledged the "extraordinary" impact of the financial meltdown. Government debt was now over 38 per cent of GDP, while the deficit had grown to 5.7 per cent of GDP. But more borrowing was necessary, Ingraham said, if the country was to avoid painful adjustments.
Meanwhile, the seemingly never-ending privatisation of BTC was entering its final stages, and the government began to mull the sale of other public corporations. Plans were also drawn up to cut ZNS' bloated staff level by more than a third.
"The financial resources released from propping up these corporations, plus the proceeds of privatization, would provide welcome relief to the Bahamian taxpayer," Ingraham said.
As the vaunted Emerald Bay resort on Exuma closed and other major foreign developments were put on hold, the government sought to cushion the impact of "these deeply troubling times" with unemployment benefits and a national re-training initiative to help laid-off workers find new jobs.
May 2010
The 2010-11 budget prescribed the most stringent fiscal retrenching of recent times, against a backdrop of 15 per cent interest on the nation's $2.9 billion public debt. Unemployment rose to more than 14 per cent.
Ingraham acknowledged that the country could not sustain more deficit spending. This was in line with the IMF's view that emergency fiscal measures should now be withdrawn, to signal a credible commitment to contain debt.
Spending was essentially frozen at 2009 levels and the government said it would pursue tax reform to raise revenue collection to 20 per cent of GDP to slow the growth of debt. After contracting by about 7 per cent in 2008 and 2009, the Bahamian economy barely grew in 2010 - by less than half a per cent - while government debt soared to 48 per cent of GDP.
May 2011
By 2011, the debt had climbed to 53 per cent of GDP, as the government borrowed more to strengthen the social safety net and continue major infrastructure investments.
"Reforming and modernizing tax administration will be crucial to deal with future changes in the tax regime that may flow from a much-needed and overdue reassessment of the revenue structure of the government," Ingraham noted.
Meanwhile, revenue was bolstered by $210 million received from the sale of BTC in April, which reduced the deficit somewhat. Government debt was put at $3.8 billion, or 46 per cent of GDP, while revenue collection was 18.5 per cent of GDP. And the economy grew by a modest 1.6 per cent in 2011.
May 2012
In the first budget of his current term, Prime Minister Christie said the financial picture was worse than anticipated and promised to maintain fiscal prudence, while forecasting major new spending on mortgage relief, education, urban renewal and healthcare. He also undertook to explore ways of re-nationalizing BTC.
Christie said tax revenues would have to rise, suggesting they should be 25 to 30 per cent of GDP - a significant jump over previous revenue collection proposals. "Our tax base is much too narrow, focusing as it does on goods to the exclusion of services," he said. "This is simply unacceptable in a modern economy."
The government said it would appoint an economic advisory council and prepare a White Paper on tax reform, along with a centralized tax administration system. "The current structure is disjointed, inefficient and inequitable in many respects," Christie said.
Unemployment spiked at 16 per cent in late 2011 and economic growth this year is projected to be about 2.5 per cent, driven by tourism and foreign investment, especially the Baha Mar development on New Providence. Similar modest growth is expected next year.
Government debt was just over $4 billion in May, over 50 per cent of GDP, and the IMF has warned that delaying tax reform will raise financing costs and threaten the economic recovery. This year's budget includes spending of $1.82 billion against revenues of $1.55 billion, producing a deficit of $550 million - or 6.5 per cent of GDP. Debt servicing is now $328 million, or just over 18 per cent of total recurrent expenditure.
Conclusion
This potted history makes it clear that, from the beginning of the 21st century - when the US economy to which we are firmly attached had just experienced the longest economic expansion ever - successive governments have been ratcheting up the national debt, no matter what they said to the contrary.
There are valid reasons for this - the country needs better social and physical infrastructure to achieve orderly growth and improve the quality of life. This requires investment that has to be paid for. Simon Townend of KPMG (Bahamas) has said we need to spend more than $2 billion over the next few years in transport, health, education and other sectors to remain competitive.
The upshot is that the Bahamas has a serious infrastructure deficit - despite significant recent investments in roads, electricity and water supply, air and sea ports. There are still large backlogs of needed work on existing systems, together with new demands that go unmet. Meanwhile, scarce public funds are being poured into dysfunctional state corporations that provide very little public value.
Successive governments have also known for years that they have to tackle tax reform - changing revenue collection from an outdated system based on import duties to one based on consumption or income. But they have postponed all the hard decisions. Prime Minister Christie appears set to grasp this nettle, but it is critical that we achieve the right balance between revenue, spending and borrowing. And that requires the considered input of civil society, not just the pontifications of politicians.
One of the biggest contributors to deficit spending (and to the national debt) over the years has been the public sector. Despite the sale of 51 per cent of BTC last year (after 13 years of trying), inefficient state corporations continue to absorb hundreds of millions of tax dollars. Is it really necessary for the government to own and operate all these corporations?
And although energy is a critical problem for both the public and private sectors, it does not appear that urgent steps are being taken to (in the words of the National Energy Policy) "aggressively re-engineer our legislative, regulatory, and institutional frameworks and implement a diverse range of sustainable energy programmes."
Back in the good old days of 2001, Sir William Allen warned that unless fiscal deficits were curbed, "the resources required to service the increasing debt will eventually bankrupt national programmes." He added that "increasing the share of GDP taken in taxation above 20 per cent...would adversely impact the competitiveness of the economy and eventually...destroy jobs."
According to PLP Senator Jerome Gomez, the days of borrow, borrow, borrow and spend, spend, spend are over. Well, let's give him a raincheck on that.
In the meantime we should focus on this: many experts say that an economic shock from Europe, which is quite possible in the months ahead, could push the US and most of the rest of the world into another big recession.
Former prime minister and current leader of the opposition in Barbados Owen Arthur recently expressed his sentiments about regional integration and its importance to the growth of the Bahamian economy.
“Removal of trade barriers is essential for the development and advancement of the Bahamian economy if we intend to be more involved in the global economy,” Arthur said. “The Bahamas can play an integral role in the development of the Caribbean region and the economies of its member states if they understand and maximize their full potential in the ways they can contribute to regional development.”
Arthur made his comments during a meeting in Barbados with Tyson Mckenzie, president of the Bahamas National Youth Council (BNYC), on March 31st, 2011. During the meeting, the ways in which the Bahamian youth and citizenry at large should prepare themselves for regional integration was discussed.
It was further noted by Arthur that the Bahamian people do have legitimate concerns, such as fiscal issues, labor mobility and social dislocation, with regards to the reservations of the involvement into the CARICOM Single Market and Economy (CSME). He noted that when he was the prime minister of Barbados and a guest speaker at a town hall forum in The Bahamas, Bahamians expressed a fear of the influx of Caribbean nationals into their country.
However, he urged that if The Bahamas intends to increase its presence in international organizations and/or agreements it must first allow itself to see if its economy is prepared to handle the demands of other economies when it liberalizes its barriers for open trade.
“The Bahamas is moving backwards with reference to signing onto these international arrangements and agreements,” Arthur said. “It should work the other way around, The Bahamas should first explore the means of liberalizing its economy with its own brothers and sisters who have their true interest at heart.
“By doing this, The Bahamas is preparing itself for the international integration with other countries and better and more substantial involvement in international organizations such as the WTO, EPA and others.”
Arthur also mentioned that the Bahamian economy can also benefit from the rights of establishment. It was mentioned that the Bahamian economy has a struggling agriculture industry and it should be moving towards diversification. Noting that The Bahamas depends heavily on the tourism industry and customs as its main sources of revenue, when integrated into certain international trading agreements this would result in the removal of tariffs and barriers related to the free movement of goods and services.
Problems have emerged in the Bahamas over the number of Chinese workers on a project funded in part by the Export-Import (Ex-Im) Bank of the People’s Republic of China.
The original number of Chinese workers appears extraordinarily high – 8,150 even though there is an undertaking from the owners of the project that the peak number of foreign workers, at any given time, will not exceed 5,000 non Bahamians.
Rightly, Bahamas’ Prime Minister, Hubert Ingraham, has raised concerns about the large number of Chinese workers. His concerns are particularly relevant against the background that, according to the International Monetary Fund “tourist arrivals declined by 10 percent and foreign direct investment fell by over 30 percent, leading to a sharp contraction in domestic activity and a large rise in unemployment” in the Bahamas in 2009.
Construction is a critical engine of growth in any economy, but especially so in small economies where payments to local workers and suppliers keep money in circulation over a wide area including supermarkets, transport providers, clothing and footwear stores, real estate rentals and banks.
If 8,150 Bahamians – or close to it as possible – could be employed in this project, it would definitely be a fillip to the Bahamian economy and help to expand domestic activity and create jobs directly and indirectly.
The issue troubled Ingraham enough for him to travel to China to raise the matter with the Chinese government and return to the Bahamas with the news that he had succeeded in securing $200 million dollars more for construction workers and for Bahamian sub-contractors, raising the total that would be allocated to them to $400 million.
How this translates into jobs for Bahamians and a reduction in the number of Chinese workers is unclear, but note should be taken that, not surprisingly, the opposition Progressive Liberal Party (PLP) has characterised Ingraham’s journey to China as “a failure”. To be fair, it should also be pointed out that it was the PLP which introduced this project, known as Baha Mar, when it served as the government.
Baha Mar, projected to cost $2.5 billion, is a very large tourist project. On completion it is expected to rival the Bahamas’ biggest tourist plant, Atlantis, which was developed by Kerzner International. The operator behind Baha Mar is Caesars Entertainment Inc, a private gaming corporation that owns and operates over 50 casinos and seven golf courses under several brands. Prior to November 18, the Company was called Harrah’s Entertainment.
Ceasar’s, like every commercial business, puts its profitability first. In seeking financing from Ex-Im Bank of China, they apparently agreed that the work force, in effect, would be 71% Chinese and 29% Bahamian – a bitter pill to swallow in the best of economic times and certainly indigestible in the present economic climate.
No one in the Bahamas or elsewhere doubts the contribution that Baha Mar will make to the Bahamas economy in the short and long term, but the conditions of the Chinese loan rankles on the requirement for such a large number of Chinese workers.
After all, this is not aid. It is not even emergency or disaster aid when a high component of Chinese material and people would be acceptable. It is purely and simply a commercial contract, lending money that will have to be repaid.
The only reason one can surmise for the insistence on such a large number of Chinese workers, vastly outnumbering Bahamian ones, is that the Chinese will work for less and trade union conditions, and rights, would not apply in their case thus reducing the cost of the project.
This commentary is less concerned about the local politics of the Bahamas that are involved in this issue; more qualified people can comment on them. It is more concerned with the present and future relations between Caribbean Community (CARICOM) countries and China.
The experience of African countries, notably Angola recently, in relation to China’s use of an overwhelming number of Chinese workers, shows a strain in their relations with China. In 2006, the former President of South Africa Thabo Mbeki famously remarked: Africa must guard against falling into a "colonial relationship" with China.
As in all their bargaining with third countries, the CARICOM states would secure better terms if they negotiated with China as a collective than if each of them tried to bargain alone. And, if they succeeded in settling a treaty with China, issues such as the paramountcy of local labour in commercial projects and in loan-funded projects could be settled upfront, as would issues such as the supremacy of labour laws and respect for human rights in the countries where such projects are undertaken.
To negotiate such a Treaty with China, however, CARICOM countries have to do one of two things: those who now recognise Taiwan over China will have to drop that stance so that there is a united CARICOM recognition of China only; or those that recognise China should proceed to negotiate the Treaty with China leaving the others to join when they can.
There is a small window of opportunity left to negotiate a meaningful treaty with China. As China grows more powerful economically crowding out CARICOM’s traditional aid donors and investment partners, it will become very difficult for small Caribbean countries to bargain for the best terms even on commercial projects.
Beggar thy neighbour policies will get CARICOM countries nowhere in the long term and the time is right for all CARICOM countries to strengthen their relations with China on the basis of a structured and predictable treaty.
My friend and fellow writer, Anthony Hall, wrote recently that Hubert Ingraham’s “challenge to China” on the issue of the 8,150 Chinese workers “is precedent setting... and it behoves all leaders in our region to support, and be prepared to emulate, the stand he’s taking: for together we stand, divided we fall”.
China has itself faced the challenges of division; it might – just might - respect Caribbean unity.
Living standards fell 0.3% per year, 02-09 By NEIL HARTNELL Tribune Business Editor:
The Bahamian economy and living standards shrunk at a rate of 0.3 per cent per annum between 2002-2009 "as a result of its narrow" base, a Wall Street credit rating agency has concluded, while surprisingly questioning whether the Bahamas Telecommunications Company's (BTC) privatisation process had been "postponed" yet again.
Standard & Poor's (S&P), in its full country report on the Bahamas' sovereign credit rating that was released this week and obtained by Tribune Business, raised questions about whether the 2002-2007 period - described as 'years of plenty' by the then-governing Christie administration - actually delivered the major increase in salaries/living standards for most Bahamians that it was supposed to have done.
Placing the Bahamas' short-term sovereign credit rating at 'BBB+', down from the previous 'A-2', S&P said: "The Bahamian economy contracted by an average of 0.3 per cent per year on a capita basis from 2002-2009 as a result of its narrow economy and close economic ties to the US.
"This lags the growth rates of most peers, and is less than the 'BBB' median average of 3.7 per cent growth. The weaker performance results from several factors. These include the adverse weather conditions that the Bahamas, like other Caribbean islands, is susceptible to; a lacklustre tourism arrival performance over the past few years; greater competition in the tourism industry; and the global recession in 2008-2009. Medium terms prospects remain subdued."
Data released by S&P reveals that the Bahamas' GDP per capita, or income per person, has been impacted heavily by the global recession, having not increased much during the Christie administration.
While GDP per capita rose from $22,223 in 2006 to $22,577 in 2007, the onset of the global financial crisis saw it fall back to $22,465 in 2008, followed by a further contraction to $21,449 in 2009. Bahamian GDP per capita is predicted to 'bottom out' this year at $21,433, before rising to $22,099 in 2011 and $22,559 in 2012.
Meanwhile, S&P's analysis raised questions as to whether it knew something the rest of the Bahamas did not on the status of the BTC privatisation process.
The Wall Street credit rating agency said: "The Government hoped to receive $200-$300 million in proceeds from the sale of a 51 per cent stake in BTC in the first half of 2010 to alleviate financing needs.
"However, the Government has once again postponed the privatisation following seeming disappointment with the bids and prices offered at the end of 2009. Plans have existed to sell BTC since the first Ingraham government, and when it took office again in 2007, it cancelled the sale of BTC to Bluewater Communications, which the previous administration had arranged."
BTC's "postponed" statement is at odds with the Government-appointed privatisation committee's recent assertion that 'due diligence' on the prospective bidders was continuing.
Zhivargo Laing, minister of state for finance, who heads the advisory committee overseeing the process, could not be reached for comment before press deadline. And nor could T. B. Donaldson, chair of the privatisation committee, or Julian Francis, BTC's chairman, despite messages being left.
It appears likely that S&P may have got it slightly wrong, and that privatisation is not 'postponed'. It may, though, have been delayed, as the protracted seven-month 'due diligence' period indicates that the Government may indeed have not received the quality of offers and prices it was hoping for, and has possibly engaged in talks with one or more bidders.
Those invited through to the due diligence round included J. P. Morgan/Vodafone; Atlantic Tele-Network/CFAL; Trilogy International Partners; and Digicel. Tribune Business last week heard whispers that both Digicel and J. P. Morgan/Vodafone were no longer interested, which would be a surprise in the latter's case, given that it was a frontrunner.
Those rumours have not been confirmed, though, and nor has speculation of a $130 million purchase price for 51 per cent of BTC.
Elsewhere, S&P reported that foreign direct investment, so crucial to the Bahamian economy and its foreign currency earnings/reserves, was likely to decline even further in 2010 compared to last year.
"Traditionally, foreign direct investment has financed a large part of the current account deficit," S&P said. "From 2005-2008, foreign direct investment financed almost two-thirds of the current account deficit.
"In the first three quarters of 2009, foreign direct investment inflows were greater than the current account deficit. However, we believe that in 2010 and over the following years, foreign direct investment will not fully finance the deficit.
"Foreign direct investment totalled $600 million during the first nine months of 2009, compared with $1 billion in full-year 2008. We expect foreign direct investment to slow further in 2010 as tourism projects progress slowly."
And while international reserves grew to $825 million in 2009 compared to $563 million at year-end 2008, they received a "particular boost" in the 2009 second half from the Government's $300 million foreign currency bond, coupled with $178.7 million in 'special drawing rights' from the International Monetary Fund (IMF).
In addition, S&P said analysis of the Bahamas' current account deficit financing was complicated by the "presence of persistently large positive errors and omissions", which were 24 per cent and 85 per cent of the current account deficit in 2007 and 2004 respectively.
Rightly, Bahamas’ Prime Minister, Hubert Ingraham, has raised concerns about the large number of Chinese workers. His concerns are particularly relevant against the background that, according to the International Monetary Fund “tourist arrivals declined by 10 percent and foreign direct investment fell by over 30 percent, leading to a sharp contraction in domestic activity and a large rise in unemployment” in the Bahamas in 2009.