Wednesday, May 16, 2018
By NEIL HARTNELL
Tribune Business Editor
The Bahamas will not "reap the full benefits" of World Trade Organisation (WTO) membership unless it takes "bold action" to eliminate structural obstacles to growth, the IMF has warned.
The Fund, in its latest Article IV report, warned that economic growth will remain "subdued" unless the Government moves decisively to address this nation's "ease of doing business", energy, labour and credit market inefficiencies.
"Decisive structural reforms are needed to unlock growth, particularly as a gradual liberalisation of the economy advances," the IMF said, acknowledging the Minnis administration's efforts to deregulate through initiatives such as exchange control liberalisation, the Commercial Enterprises Act and the WTO accession process.
Yet it warned that The Bahamas will fail to maximise the benefits from such reforms, and be unable to achieve higher GDP growth rates, without addressing long-standing structural weaknesses and bottlenecks within its economic make-up.
"Staff stressed that these efforts should be complemented with bold action to put the public debt-to-GDP ratio on a downward trajectory, and to alleviate structural impediments to reap the full benefits from greater integration with the global economy," the IMF said.
"A more competitive economy would also facilitate a further strengthening of foreign reserve buffers...... Without bold action to tackle long-standing structural bottlenecks, medium-term growth would remain subdued."
The IMF's comments were yesterday seized upon by Robert Myers, the Organisation for Responsible Governance's (ORG) principal, as supporting his long-standing calls for the Government to address its own inefficiencies before leading the Bahamas into full WTO membership.
"It's interesting that the IMF report mirrors our own belief, and what we've recommended to the Government, in terms of reducing the cost of business to allow us to become more competitive and gain the broader benefits of WTO accession," he told Tribune Business.
"That's the whole point of what I've been saying. I'm not against WTO, but we need a level playing field. That's what the IMF is saying; if we get our costs order we will be more competitive regionally and globally.
"Our biggest impediment to getting our costs in order is the Government's inefficiency and inability to improve the ease and cost of doing business. That means energy costs, taxes, exchange control, credit and banking regulations. Removing these structural impediments is what levels the playing field."
Mr Myers has repeatedly urged the Government to delay WTO accession until the Bahamas first "puts its house in order", and lowers the cost and bureaucracy associated with doing business in this nation. Otherwise, he has warned, opening up local industries and markets to larger, more efficient and lower cost foreign rivals will see Bahamian-owned businesses wiped out.
"If I'm paying $5,000 an acre for land to put an office on because land is expensive, and the guy in Florida is paying $2,500 an acre, I've got problems," he told Tribune Business. "If I'm paying 65 cents a gallon for water and they're paying three cents a gallon, it's hard to compete.
"If I'm paying 44 cents a kilowatt hour and they're paying 11 cents, it's hard to compete. If I'm paying a 6.5 per cent interest rate and they're paying 3 per cent, it's hard to compete. If I'm paying 1.5 per cent to access foreign exchange it's hard to compete."
Mr Myers said much of the responsibility for improving the Bahamas' 'ease of doing business' rests with the Government, given that it makes the laws and regulations, controls the various approval processes and controls most of the utility monopolies.
"When you get efficient I can get efficient and compete in a global marketplace," he told the Government. "Until you get efficient I can't get efficient to compete in the global marketplace."
In response to the IMF's concerns, the Government said the Rate Reduction Bond (RRB) intended to refinance the Bahamas Electricity Corporation's (BEC) legacy debts and liabilities - amounting to as much as $650 million - will be placed in early 2019.
"BPL is planning on issuing the rate reduction bond in early 2019 to refinance its legacy debt and fund additional infrastructure," the IMF said. The Article IV report made no mention of the recent long-term generation contract awarded to Shell North America, which will only take effect in 2021, instead referring to the initial short-term tender.
"On enhancing the business environment, the Cabinet is currently reviewing specific recommendations issued by the 'Ease of Doing Business Committee', appointed last summer, some of which have already been implemented," the IMF said.
"They also noted that the anti-corruption reform package will strengthen governance and the rule of law, and stressed their commitment to fight crime."
Summing up, the Fund said: "Lifting growth in the medium-term requires resolute implementation of structural reforms. Priorities include advancing energy sector reforms to improve the reliability of the electricity grid and reduce costs; streamlining administrative processes to improve the ease of doing business; expanding vocational and apprenticeship programmes to help reduce skills mismatches and youth unemployment; and steadfast implementation of the credit bureau to improve access to credit."