Dorian's $436mĀ fiscal blow needs 'tight' rein


Tribune Business Editor

The government was last night urged to keep a "tight" rein on post-Dorian recovery after the storm blew an estimated $436m hole in its fiscal deficit target for 2019-2020.

Robert Myers, the Organisation for Responsible Governance's (ORG) principal, told Tribune Business that the scale of the damage to the government's fiscal consolidation plan meant it was imperative to keep corruption, waste and inefficiency out of restoration efforts.

While agreeing that rebuilding shattered communities in east Grand Bahama and Abaco had to be the priority, Mr Myers warned that the recovery bill could become "a runaway train" leading to potential devaluation of the Bahamian dollar unless a firm grip was maintained on associated spending.

The ORG chief spoke out after K Peter Turnquest, deputy prime minister, yesterday told the House of Assembly that the Ministry of Finance's preliminary estimates forecast a more-than-quadrupling of the 2019-2020 fiscal deficit compared to Budget projections back in May.

He said Dorian was now likely to wipe out $215m, or eight percent, of full-year revenues while extra spending to rebuild utility infrastructure, public health clinics, temporary housing and to deliver government services in the impacted areas was pegged at just over $222m.

While Abaco, at 6.4 percent, and Grand Bahama at 7.3 percent, collectively accounted for 13.7 percent of total government revenues in the 2018-2019 fiscal year, Mr Turnquest said the two islands' contributions had "always been an important component for delivering on the government's overall budgetary projections".

He added: "Early estimates prepared by the Ministry of Finance point to a revenue shortfall of nearly $215m, or eight percent of the overall revenue projected for fiscal year 2019-2020 as a direct result of Hurricane Dorian.

"When it comes to spending, initial estimates show we will need to spend an additional $222.4m, with a split of $80.9m for recurrent spending and $141.5m for capital. These funds will primarily be used for rebuilding critical infrastructure on Abaco and Grand Bahama, including electricity and water services, the reconstruction of affected medical facilities, the construction of temporary housing and the delivery of targeted Government services and assistance to affected populations."

Mr Turnquest said the Government planned to source the financing for this spending from multiple sources, including the $100m contingent credit facility provided by the Inter-American Development Bank; $12.9m from the Caribbean Catastrophe Risk Insurance Facility (CCRIF); and $20m from the dormant bank accounts.

He added that half of the funding received from the latter source will go to the $10m facility being established to offer equity, loan and grant financing for small and medium-sized businesses hit by Dorian. Bahamas Power & Light (BPL) and the Water & Sewerage Corporation have received advances of $10m and $6m, respectively, to enable them to start the restoration process.

Totalling up the extent of the damage, Mr Turnquest told the House: "Given that our revised projected revenue will be in the region of $2.414bn, and expenditure at $2.988bn as a result of Hurricane Dorian, the fiscal deficit for fiscal year 2019-2020 is likely to be nearly $573.4m, or an elevated 4.5 percent of GDP.

"This exceeds the $137m, or 1 percent fiscal target, as prescribed by the Fiscal Responsibility Act." The Act requires the Government to present a fiscal adjustment plan as a result of this miss, detailing the measures it will take to get its consolidation plan back on track and estimates of how long it will take to do so.

Mr Turnquest said such a plan will be presented to both parliament and the Fiscal Responsibility Council (FRC) in November as part of the upcoming 2019 Fiscal Strategy Report, while a post-Dorian budget will outline changes to revenue and spending along with requests for additional borrowing.

The Government is looking to multilateral and local lenders, including commercial banks, to help provide the remainder of post-Dorian financing. Mr Turnquest also confirmed that the Ministry of Finance will work with all government agencies to reduce their discretionary spending by 10 percent in a bid to mitigate the fiscal fall-out.

The $436m deficit increase, which is in line with Tribune Business's $500m estimate, will nevertheless take The Bahamas' national debt close to the $8.5bn mark - bringing it ever closer to $9bn.

"It ain't pretty, but I get it," Mr Myers told Tribune Business yesterday of the Government's fiscal forecasts. "I hope they're being wise about getting good pricing on the clean up and stuff. Somebody today claimed they were paying 40 percent more than they should be for trucking and equipment.

"I hope that's not true, and they're going out with competitive bids and consider using outside help if need be to keep costs in order. It's [the deficit explosion] concerning but there's nothing we can do. We've got to put these economies back together."

Mr Myers also bemoaned the seeming absence of a long-term strategic plan, adding: "What I hope happens, and what I haven't heard yet, is a definitive economic long-term redevelopment plan.

"I'd like to hear that rather than the award of a contract for clearing up garbage. What is the long-term recovery plan? Somebody needs to work on that really quickly. The other concerning bit is: Can they hold spending at $222m?"

The ORG principal also questioned why almost $81m of this had been classified as recurrent spending, which typically goes on the Government's fixed costs, rather than as capital expenditure.

"I get it, we've got to rebuild, no doubt about it, but we've got to keep it tight and keep the corruption and stupid stuff out of it," Mr Myers told Tribune Business. "If it becomes a runaway train we're going to risk devaluation, and if we have devaluation we're going to have inflation.

"We've just got to keep it tight and keep stupidity out of it. I'm concerned about the $81m recurrent. Why recurrent?"

Mr Turnquest yesterday said Dorian's impact meant only "a temporary departure" from the Government's fiscal consolidation plans, and added: "This is not, and will not be, a license to return to the days of reckless and feckless fiscal mismanagement.

"The Government will experience a significant decrease in revenue as Grand Bahama and Abaco will take months and years to recover. That is 20 percent of the economy that has gone off line for the time being.

"Similarly, the substantial costs to restore the public infrastructure and provide support to our impacted populations are and will remain a priority for the Government. This requires substantial spending that obviously was not planned and cannot be delayed."