The Bahamas Rising National Debt

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

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Gold and Diamond Exchange Opportunity for The Bahamas

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.

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The Crux of The Bahamas National Trade Policy

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.

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A note to Hubert Minnis on value-added tax (VAT) in The Bahamas ...and how we got there

VAT How we got here

A note to Hubert Minnis

By CANDIA DAMES
Guardian News Editor
candia@nasguard.com
Nassau, The Bahamas

Amid what appears to be a growing public tide against the July 1, 2014 implementation of value-added tax (VAT), Free National Movement (FNM) Leader Dr. Hubert Minnis has finally released a position on this contentious issue.

It came as pressure grew within his party for the official opposition to make a clear statement on what would be the most dramatic shift in tax policy in decades.

The statement Minnis came up with is stunningly shallow.  It lacks intellectual rigor and shows a startling lack of vision and leadership, all of which we desperately need at this stage of our development.

That is surprising in the sense that he should have access to the facts and to sound advice from qualified and knowledgeable people within his own party.

Given how long it took him to release a statement, he should have had adequate time to formulate a more reasoned position that could be taken seriously and add value to the ongoing discussion on tax reform.

But given his record on matters of serious import (for example, multiple positions on gambling), no one should be surprised that his sole approach is to attack the government on its plans without presenting a well thought out contribution to this growing debate with accompanying proposed policy alternatives.

It seems once again that the opposition leader has gauged the direction of the wind and formulated his position based on the mood of the country.  But be mindful that his position could shift again with any sudden temperature change or change to the national tone.

Minnis, who 18 months ago sat as a minister of government, called on the current administration to immediately “come clean to the people, and to explain, precisely and clearly what the circumstances are which have prompted this sudden lurch towards the imposition of VAT”.

It is worrying that the official opposition leader does not know the answer to this question.

Minnis is operating as someone who only entered the political arena in May 2012, distancing himself from the actions of the former administration.

He pretends instead to be blind to the fiscal circumstances of the day, but more importantly to the fiscal realities that existed while he was a minister of government, and the decisions taken to address those realities.

While no one should excoriate the FNM leader for setting along his own path and defining his own leadership style, he and his party are saddled with their record in office.

They cannot run from the decisions taken by the FNM administration — the good and the bad ones.

If as opposition leader Minnis does not know what the circumstances are that have prompted this “sudden lurch towards the imposition of VAT”, he might be ignoring easily available facts.

Progressive Liberal Party (PLP) Chairman Bradley Roberts has gone as far as saying Minnis might be suffering a case of memory loss.

“How else [do you] explain his scolding for a debt crisis created by his own party?” Roberts asked.

“Or was Dr. Minnis asleep at the Cabinet table when his government approved, borrowed and spent over $2 billion in five years, running up the national debt and pushing the country into this current fiscal dilemma?”

If Minnis is not sure how we got to where we are, he might find it useful to do a bit of research and examine the facts of the country’s debt levels.

This might jog his memory.

In August 2011 when the international credit rating agency Moody’s downgraded its outlook for the Bahamian economy from stable to negative, it pointed to the significant run up in government debt levels in recent years and the country’s limited growth prospects.

Moody’s noted that debt rose steadily between 2000 and 2008, but over 40 percent of the increase occurred between 2009 and 2011.

Government debt at the end of June 2011 was estimated at $3.5 billion. It has continued to grow.  It is projected to be $4.9 billion when the government implements VAT next July.

This is unsustainable. We are in crisis.

Had the Free National Movement been re-elected to office last year, we would have been facing the same urgent need to tackle our debt, and reform our narrow and inefficient tax system.

Reform

Before Minnis twists himself into an impossible situation and puts his credibility on the line, perhaps he ought to have a discussion with former Minister of State for Finance Zhivargo Laing, his former Cabinet colleague, who helped engineer fiscal policies under the Ingraham administration.

Laing has not hidden the fact that the FNM had planned to implement VAT within “two to three years” if it had won the election last year.

The PLP administration is seeking to do it at the start of its third year in office.

Laing said more recently, “In office, we certainly looked at implementing it and if returned to office would have given it early consideration.  However, we would have also given it broad consideration in the context of the wider reforms to our tax system that we were already undertaking.”

So Minnis’ own party was eyeing what he now calls a “regressive” taxation system.  He may wish to examine why his party also thought this regressive tax was the best option.

He now warns that VAT would “seriously impair the already weak, uncompetitive and struggling Bahamian economy and harm and diminish the quality of life of every Bahamian”.

Unlike Minnis, Laing does not run away from the fact that the Ingraham administration piled on the debt.

The pace was dizzying.

Laing noted in a speech to the Rotary Club of Freeport in August that, “A country can borrow to cover its deficits for a long time, for decades and decades.

“It can even do so increasing its debt to GDP ratio to extraordinary levels, above 100 percent, but the price to pay for this is reduced ability to afford products and services (education, infrastructure, technology, etc.) that could lend to a more prosperous, efficient and peaceful state.

“Minimizing deficit spending is good government policy, especially in times of economic growth.”

The former government has been sure to provide a clear explanation that the high level of borrowing was needed in the face of a dramatic downturn in the global economy.

That explanation has been arguable, as the PLP accused the Ingraham administration of taking actions to worsen an already bad situation.

While prime minister, Hubert Ingraham had said often in his last term that without borrowing the government would not have been able to do simple things, like pay the salaries of civil servants.

Minnis ought to know that we are now suffering the fallout of sky-high deficits and annual borrowing.

To be clear, the vast majority of the resolutions to borrow were approved in Parliament by the then opposition led by Perry Christie.

Nobody likes to hear of new taxes, and so VAT and tax reform was not a prominent theme of the 2012 general election campaigns.

Upon coming to office, the PLP itself feigned surprise at the state of public finances.  With that excuse in hand, it continued to borrow, saying it needed to do so to deal with the problems it inherited from the Ingraham administration.

“The fiscal accounts are in much worse shape than we had expected as we came into office,” Prime Minister Christie told the House not long after the May 2012 general election.

“In our very short time in office, it has become clear to us that the previous administration has, through its actions and fiscal policies, constrained our room to maneuver.”

In May 2013, the Christie administration brought a resolution to the House of Assembly to borrow $465 million to finance the projected revenue shortfall in the 2013/2014 fiscal year.

This added to the $650 million the new government borrowed in its first year.

Government debt as a percentage of GDP is projected at 56.4 percent at the end of 2013/2014.

Christie advised that much of the money the government borrowed last year was required to cover unpaid financial commitments incurred during the Ingraham administration.

“The legacy of high public deficits and spiraling debt burden that we inherited is brutally onerous: almost one out of every $4 in revenue collected by the government must be allocated to pay the interest charges on the public debt and cover the debt repayment,” he said.

“Had we chosen to ignore the grave structural imbalance in the public finances, the debt would have continued to spin out of control.”

This year, the government will spend an estimated $230 million on debt servicing alone.

While it is true that the PLP claimed to have immediate but unrealistic answers to attack our fiscal and economic woes while on the campaign trail, it is not on its own responsible for the current state of affairs.

It matters not at this juncture who is to blame, however.  What is required now is reform to arrest the growing unsustainable debt levels.

As stated by Laing in his address to Rotary, “If you want to punish those who drive up cost through waste or bad decisions, then do that at election time, but know that the cost still has to be paid by the citizens.”

Minnis may wish to read and carefully consider that useful and informative address delivered by Laing.

In the speech titled “VAT and its implications for The Bahamas and the Bahamian economy”, Laing pointed out that the government needs cash and it needs it badly.

“We are in discussions about VAT implementation because there is a glaring reality confronting The Bahamas, which is that its income cannot pay for its operations,” Laing explained.

“It has not done so from The Bahamas became an independent nation.  We have run deficits and financed those deficits with borrowings since 1974, when we ran a deficit of some $33 million.  Incidentally, we had a surplus of about $3 million the year before that, the last such surplus seen on total budget performance.”

Laing continued, “In the wake of the crippling effects of the global recession of 2008 and the strain it put on the revenue of the government, our deficit spending has reached extraordinary levels, which is unsustainable, especially in light of the modest growth seen both in terms of the world’s economy and our domestic economy so dependent on it.

“The government needs money to pay for its expenses, and it needs money badly.  That is why VAT is being discussed with the sense of urgency that it is being discussed today.  In 1995 when the issue first arose, it was being discussed as a planning function; today it is a practical issue of money.”

Details

The Nassau Guardian last week reported on the government’s proposed VAT bill and regulations. It is not clear when these will be brought to Parliament.

The debate cannot be vibrant and well informed without the official release of what is being proposed.

Minnis has said the PLP should immediately disclose to the Bahamian people the details of any economic studies and analyses either by domestic or international advisors or agencies that have led the government to this proposed course of action.

Many people are indeed awaiting the release of an economic impact study to show specific projections resulting from the VAT implementation, including the projected cost of living impact.

Financial Secretary John Rolle said last week that the cost of living is expected to rise between five and six percent in the first year.  There were no details to show how these figures were arrived at, and there were no projections provided for cost of living increases in subsequent years.

This year is almost ended, and the government will have six months to clearly make its case, to seek to calm frayed public nerves, and cause for a smooth implementation of the new tax system.

That is ambitious.

Anecdotal evidence suggests the government is losing, not gaining support from the public on its push toward the implementation of VAT.

Its marketing of the initiative is on shaky ground, and it is only now just starting its public education campaign.

While there is an urgent imperative to act, it appears that on its current track, the new tax system could be off to a chaotic and undesirable start — a difficult birth, as we opined here previously.

What the government needs now is a more community based VAT campaign and a bit more time to get the message out.

It might be in the interest of everyone to push off the implementation date by a few months.  It would allow the business community and consumers to better digest the details of VAT.

And perhaps it would give the opposition leader a bit more time to better understand how we got to where we are.

We hope it would also give the government a little more time to present a tax reform package that has buy-in from the opposition.

On a matter this grave, such a buy-in could only be in the national interest.

thenassauguardian

Value-Added Tax (VAT) in The Bahamas ...and its “positive” impact on the Bahamian economy’s growth and employment prospects ...in the medium-term

Idb Study Shows Vat 'Positive' For Jobs, Growth

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Nassau, The Bahamas


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.

October 21, 2013

Tribune 242

 

The Bahamian economy ...government debt, budgets and deficits: ...A look at how The Bahamas' economic circumstances have evolved over the past decade

A Perspective On The Bahamas Budget

TOUGH CALL

By LARRY SMITH

Nassau, The Bahamas



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. 

What do you think? Send comments to larry@tribunemedia.net or visit www.bahamapundit.com .

June 06, 2012

Tribune242

If we are to empower Bahamians in the 21st century Bahamas, creating jobs alone from foreign direct investments and empowering a handful of Bahamians is not the course of action to be taken... ...Bahamians need a government in place that is sensitive to the needs of its people at large... ...Sir Clifford Darling, Sir Randol Fawkes, Sir Milo Butler, Sir Lynden Pindling and Arthur D. Hanna, among others are men who were radicals of their time, understood the needs of the people and fought for majority rule

The Bahamian Dream II

By Arinthia S. Komolafe

The hope and expectation of every parent is to produce offspring who attain higher levels of success than they did.  The genuine desire of each generation should be one that is built around the attainment of higher heights and charting of new territories by successive generations.

The Bahamian Dream was born out of dissatisfaction with a substandard life and discomfort with the status quo.   It is one of deep aspiration, a cherished desire, unique ambition and daring vision of a Bahamas in which the average Bahamian can be all that he/she hopes to be.   It is a dream embedded in the minds of our forefathers and defined by the achievement of feats unimaginable in that era, but conceived in the hearts of our founding fathers.  This dream peaks at the juncture where Bahamians hold their destinies in their own hands and their strength lies in their unity, fortitude and beliefs.

It has afforded Bahamians like myself, born in Farm Road to parents who formed part of the working class at the time, educated in Bain and Grants Town at the Willard Patton Primary and C.R. Walker Secondary schools with opportunities to receive tertiary level education, command decent salaries and become homeowners.   The pursuit of this dream has also encouraged some of us to take risks and become entrepreneurs in spite of the challenges associated with such endeavours – a sacrifice made willingly to provide a better way of life for our children and generations yet unborn.   However, as impressive as this may sound, reality dictates that far too many Bahamians, particularly of my generation, have yet to claim the same testimony.

It appears that the Bahamian Dream is met by roadblocks due to an inability to foster ownership of the economy by a wide cross-sector of Bahamians.   This is ‘the tragedy of the shrinking middle-class and select upper class’ that characterizes the 21st century Bahamas and threatens the very essence and crux of the dream.   There is the accepted fact that there are more educated Bahamians up to post-graduate levels today than there were before, as well as more Bahamian entrepreneurs.   In addition, we acknowledge that The Bahamas has the third highest per capita income in the Western Hemisphere and it can be argued that we enjoy a decent standard of living as a result.  However, one may ask the following questions: Why aren’t we satisfied?   What more do we want?  The reality is that as a people collectively, we are yet to lay hold of the entire dream.  There is still much more to be achieved, more grounds to cover and we owe it to ourselves and future generations not to stop until we have done so.   The dream encourages us not to become complacent or lackadaisical, but to continue pressing until we have witnessed widespread prosperity.   To many this is a utopian outlook and nearly impossible, but I belong to the more optimistic crew of believers who dare to believe that it is possible and at the least, we should attempt to make it possible.

  

Banks and the government

The global economic crisis is real and has impacted us severely.  Atlantis, the country’s largest private employer which has created thousands of jobs for Bahamians and effectively improved the standard of living and quality of life for many, has been plagued with rumors of possible defaults on their obligations which can place thousands of jobs at risk.  There is a rising concern that the inability to bring this matter to a quick resolve can have a negative impact on an already depressed Bahamian economy.  The inability of successive governments to diversify the economy and reduce our vulnerability and dependency on employment by foreign employers has contributed to the catastrophic position that we find ourselves in today.  A robust small-medium sized business sector would have safeguarded to some extent against such possible misfortunes.  We are still waiting on the government to pass legislation concerning SMEs and it is unclear why such an important piece of legislation has not been enacted to date.  In the same manner that we passed vital legislation to save the turtles and the sharks almost overnight to preserve our marine resources, the passage of legislation to make Bahamians more self-sufficient should have been met with equivalent and perhaps more priority.

It is challenging for today’s Bahamians to become entrepreneurs being faced with start-up costs that many of them are unable to meet.  There are insufficient venture capital funds to provide access to seed money and there are limited alternative sources of funding.   Bahamians complain regularly that financial institutions won’t lend them money to start a business, but instead are quick to provide funds to finance the purchase of vehicles, vacations, grocery, furniture, etc.   If this is in fact true and the facts suggest that it is, why do they continue to enjoy our patronage?  After all, they have made millions and billions of dollars which some of them have expatriated back to their home countries or issued in dividends.   We must come together to demand more from these institutions and in the mean time patronize the financial institutions, banks, co-operatives and credit unions that will assist us in achieving the Bahamian Dream and provide more attractive rates and offers based upon the credit risk posed to each customer.   The power rests with the people and this power should be activated to make this dream a reality.

  

Empowering Bahamians

In recent times, the government has made several moves that will delay the economic advancement of the average Bahamian and defer the attainment of the Bahamian Dream.  In addition to the questionable levels of borrowing, the country’s fiscal position forced the government to carry out what was viewed by many as a fire sale of the Bahamas Telecommunications Company (BTC).   The firm was sold to foreigners reportedly under value and the bidding process appears to have been tainted.   A Bureau of Public Enterprise should have been formed to oversee the privatization process to ensure transparency in the bidding process and lack of political interference by politicians who are primarily concerned about the electorate’s and/or special interests’ concerns.   It is worth considering the approach adopted by the U.K. in privatizing its equivalent of BTC about three decades ago.   In 1981, then British Prime Minister Margaret Thatcher’s government announced that her government would be privatizing British Telecommunications (BT), which held the monopoly on telecommunication and informed the public of a program to phase in liberalization of the market prior to the sale.   The irony of this transaction from a Bahamian perspective was that Cable & Wireless, who bought BTC, was the first firm to offer alternative telephone service and receive an operating license through their subsidiary Mercury Communications in this newly liberalized market.   In 1984, legislation was passed empowering the state to sell BT.   In the same year, up to 51 percent of BT shares were sold to “British” private investors.   Legislation was also enacted that enabled BT to be in a position to succeed in the midst of an already established local competition by allowing BT to form joint ventures, expand globally and manufacture its own apparatus.   The remaining government shares were eventually sold in 1991 and 1993.

What Thatcher effectively did was expand the middle class and create wealth for hundreds of thousands of Britons through liberalization and eventual privatization.   Contrasting the U.K.’s approach to the government’s modus operandi in choosing to sell to foreigners, one wonders whether the government is a proponent of the Bahamian Dream or whether it has a vision for its people.   It is little wonder that we are faced today with a tragedy of the shrinking middle class and select upper class.

If we are to empower Bahamians in the 21st century Bahamas, creating jobs alone from foreign direct investments and empowering a handful of Bahamians is not the course of action to be taken.   Bahamians need a government in place that is sensitive to the needs of its people at large.   Sir Clifford Darling, Sir Randol Fawkes, Sir Milo Butler, Sir Lynden Pindling and Arthur D. Hanna, among others are men who were radicals of their time, understood the needs of the people and fought for majority rule.  They denied themselves and swallowed their pride to meet those needs.   That is why, more than half a century later, they are still loved by many Bahamians.  We cannot allow our progress in advancing economically to be retarded.

This generation and future generations will not be satisfied with just a job in the civil service, hotels or banks, which are not owned by Bahamians.   An economy dominated by job seekers, as opposed to job creators, will not experience the rebuilding or expansion of the middle class.   The lack of ownership within The Bahamas’ economy by a broad spectrum of Bahamians fosters job insecurity and impedes the chance for a better way of life thereby choking the Bahamian Dream.

  

•Arinthia S.Komolafe is an attorney-at-law.  Comments can be directed to: arinthia.komolafe@Komolafelaw.com

Jan 26, 2012

thenassauguardian

The Bahamian Dream pt.1

When we look out on the world... and back at The Bahamas, we agree with those who say that Bahamians -- despite hard times -- have much to be thankful for

The Bahamas has much to be thankful for

tribune242 editorial

Nassau, The Bahamas

IN his Christmas message, published in The Tribune on Thursday, Catholic Archbishop Patrick Pinder pointed out that compared with other nations, the little Bahamas has much for which to pause and give thanks this Christmas. And so, although the dark clouds of crime threaten our islands, yet there are still many signs to encourage Bahamians to believe that there is reason to hope for a brighter future.

The Archbishop shared with our readers the contents of an e-mail, which had been sent to him. It said: "If you woke up this morning with more health than illness, you are more blessed than the million who will not survive this week.

"If you have never experienced the danger of battle, the loneliness of imprisonment, the agony of torture, or the pangs of starvation, you are ahead of 500 million in the world.

"If you can attend church without fear of harassment, arrest, torture or death, you are more blessed than three billion people in the world.

"If you hold up your head with a smile on your face and are truly thankful, you are blessed because the majority can, but most do not.

"If you can hold someone's hand, hug them or even touch them on the shoulder, you are blessed because you can offer the healing touch.

"If you can read this message, you just received a double blessing in that someone was thinking of you, and furthermore, you are more blessed than over two billion people in the world who cannot read at all."

When seen in this light Bahamians have much to be thankful for. Our economy started to drag after the Lehman Brothers bank crash at the end of 2008. The seismic shock was felt worldwide. It was like a bowling alley gone wild, with one international house after another displaying warning flags until eventually Wall Street was hit and took a tumble. The world banking system is so interwoven that when one stumbled, the others came tumbling after. Not only was the world in financial trouble, but it was also in political turmoil with the Middle East on fire and headed for destruction.

Analysts blamed the financial crash on the "greed, ambition and reckless risk-taking that is now carrying the economy into the worst recession for a century."

The Bahamas was not immune. It too felt the shock waves. Greece was in meltdown, unemployment was out of control with the civil service being cut to bring spending into line. Around the world the first people to feel the belt tightening were the civil servants whose jobs disappeared almost overnight.

The civil service is the first place that governments look to cut costs when their treasuries are under pressure.

Here in the Bahamas, the Prime Minister would have been justified in trimming what for years has been recognised as a bloated and inefficient civil service. He did not.

As Prime Minister Ingraham said today in his Christmas message to the nation -- which will be broadcast by ZNS TV and radio at 8 o'clock tonight -- through prudent planning his government was able to "preserve jobs in the public service and to avoid salary cuts or lay-offs within the public sector as experienced in many developed and developing countries."

This is not to minimise the suffering of many Bahamians during this crisis. Many have lost their jobs, their homes, and really don't know where the next penny is coming from, but when one compares Bahamians' problems with the suffering of the world, the majority of our people have much for which to be thankful.

Government has been criticised for not investing in people during this lean period. However, not only is government investing in people by providing infrastructural jobs, but through these jobs it has enabled many workmen to maintain their dignity by enabling them to earn enough to support themselves and their families.

Government has been criticised for borrowing funds for roadworks. In the end, however, it will be money well spent -- not only will citizens see where their tax dollars have gone, but the infrastructure will have been so improved that it will raise the Bahamian's standard of living and enhance our tourist product -- better roads, better quality and delivery of water and electrical supplies.

Nor has the government neglected the youth. It staff has encouraged the business community to take on young people for training. And many have done so.

Next year, Bahamians face an election. When we look out at the rest of the world -- rioting and killing in the streets to overthrow governments -- we should be grateful for our democratic system. Every five years - although there is a lot of manoeuvring and name calling before hand - Bahamians go to the polls and in an orderly fashion vote their governments in or out. Just look at the turmoil and backwardness of the Middle East whose people have never experienced free elections. Earlier this year after months of street demonstrations and violence, Tunisia's president ended a 23-year rule by fleeing to Saudi Arabia. Tunisia was followed by the ousting of Egypt's Hosni Mubarak, again followed by a full scale civil war in Libya, that took out Mummar Gaddafi. That 42-year rule ended in Gaddafi's murder. And now the populace is beating at the doors of Syria's regime. A forest fire is sweeping across the Middle East echoing a people's cry against unemployment, food inflation, corruption, lack of freedom of speech, and assembly and other democratic freedoms -- all the freedoms that we take for granted in our society.

When we look out on the world, and back at the Bahamas, we agree with those who say that Bahamians -- despite hard times -- have much to be thankful for.

And it is on this note that we wish all of our readers a peaceful, and happy Christmas with family and friends, and hope that the New Year will be filled with many blessings.

We also thank our advertisers for their valued business and assure them that The Tribune will give them even better service in the New Year.

December 23, 2011

tribune242 editorial