By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas will be “Jamaica bound” unless it immediately implements measures to tackle its growing debt and deficits, a well-known fiscal hawk warned yesterday.

Rick Lowe, an executive with the Nassau Institute think-tank, told Tribune Business that this nation would copy Jamaica’s descent into IMF bail-out and structural adjustment programmes, and a national debt that exceeds GDP, unless the Government quickly stemmed its financial bleeding.

Speaking as Moody’s, the international credit rating agency, expressed alarm over the Bahamas’ “much weaker” fiscal position, Mr Lowe said the Minnis administration needed to show it was capable of introducing the necessary fiscal reforms to avoid a second ‘junk’ downgrade.

“I think we’re drowning,” Mr Lowe said, “and I suspect there’ll be another downgrade unless the Government proves they’re going to handle things differently.

“They’ve certainly shown the intention to do that, but it’s a desperate situation. It really is. It’s quite scary. It was bad enough when the PLP took over in 2012, but this is two times’, three times’, as bad.”

New fiscal alarms were sounded when K P Turnquest, minister of finance, last week predicted that the 2016-2017 fiscal deficit would total $500 million - a five-fold increase over the former Christie administration’s initial $100 million projection, and some $150 million higher than the mid-year Budget forecast given just two-and-a-half months prior.

Apart from Hurricane Matthew, Mr Turnquest blamed the expanded deficit on a $320 million “backlog” of payment and spending commitments inherited from the previous administration.

As a result, the Minnis administration is seeking Parliamentary approval to borrow a collective $722 million, with $400 million earmarked to cover the 2016-2017 ‘backlog’ and the balance to fill the $323 million deficit projected for 2017-2018.

The “wider, serial deficits”, as described by Moody’s, are forecast to take the Government’ direct debt, as a percentage of the Bahamian economy’s total output, to 71.2 per cent by the end of this month. And, when debt guaranteed on behalf of the public corporations (around 9 per cent of GDP) is factored in, the Bahamas’ total debt-to-GDP ratio will exceed 80 per cent.

The IMF regards a 70 per cent debt-to-GDP ratio as the ‘danger threshold’, and the Bahamas’ is expected to remain at or above the 80 per cent mark through the 2019-2020 fiscal year, and still incurring nine-figure deficits.

“If they [the Government] don’t make a turn at this stage, reverse this trend, I think we’re Jamaica bound,” Mr Lowe told Tribune Business. “How many years does it take to recover? You can’t recover overnight from that.

“Governments raise people’s expectations for goodies through their spending, and don’t raise the taxes to pay for it. They borrow and it catches up with them. There’s now absolutely no room to manoeuvre.

“What if there’s another hurricane? What if the economy tanks again? There’s not much positive on the horizon.”

The Bahamas still has some way to go to match Jamaica, which hit bottom when its debt-to-GDP ratio reached 145 per cent in 2012. The southern Caribbean country was forced into an ongoing IMF restructuring programme that has lasted for several years, and which has started to produce higher economic growth rates and a reduced debt-to-GDP ratio projected to hit 108.6 per cent this year.

Reiterating previous calls for a reduction in the size of government, Mr Lowe added: “I think it may to time to slash and burn, and recover from there. They’ve got to take the bull by the horns.

“What’s the spending done for us? Nothing. It’s given us less economic growth, and you don’t get economic growth from tax increases. It slows growth further.

“They have to look at cutting fat whether they want to or not. They don’t necessarily have to lay-off employees at this stage, although it may come to that. There has to be some restraint.”

Mr Lowe suggested that the Government look to reduce its real estate footprint by combining or consolidating agencies into the same building, thereby reducing rental costs and associated upkeep/maintenance for the properties it owns.

“If they were to cut 5-10 per cent, I’m sure there’s enough fat that they can cut back,” he told Tribune Business. “Instead of freeing the business environment, and allowing and encouraging businesses to invest, so the economy can grow, the Government has become an employment agency. They’ve employed people because it’s the easiest thing to do, and damn the torpedos.”

Mr Turnquest said last week that the former administration’s pre-election hirings had added $27 million to the Government’s wages bill in 2017-2018, with $30 million also spent on roadside clearance and clean-up - a sum 10 times’ the $3 million originally budgeted.

Mr Lowe, though, said the Budget presentation seemed to ‘lack urgency’ given the seriousness of the Bahamas’ fiscal predicament.

“Unless I’m mistaken, I didn’t feel the sense of urgency in the presentation that I’d thought I’d have seen,” he told Tribune Business. “We’re going to be at $8 billion in debt. What course of action are you going to be forced to take?

“There needs to be a very serious analysis agency by agency, department by department and ministry by ministry to get rid of some of this stuff the country can’t afford. How many more taxes can we bear with an economy that’s dropping so fast?

“The biggest first step is control and reduce expenditure. Then it’s to downsize government and get the handcuffs off of business, so people are willing to invest. As these downgrades continue, it just discourages people even more.”