Thursday, February 13, 2020
By NEIL HARTNELL
Tribune Business Editor
The government is forecasting that Bahamian economic output may be slashed by a full percentage point due to Hurricane Dorian, the deputy prime minister revealed yesterday.
K Peter Turnquest, pictured, launching the House of Assembly debate on the government’s extra $508m financial needs, said it had no choice but to borrow as the alternatives were to either “starve the economy” or “break the back of taxpayers”.
“We have $540.7m in new and necessary financing requirements and only $32.8m in offsetting income,” he added, referring to the monies obtained from the Central Bank’s dormant accounts and Caribbean Catastrophic Risk Insurance Facility (CCRIF). “We are also looking at the possibility of GDP shrinking by one percentage point as a result of Hurricane Dorian.”
Such a decline would likely cut Bahamian economic output, which GDP measures, by around $120m-$130m. However, Mr Turnquest drew comfort from the Caribbean Development Bank’s (CDB) forecast that the Bahamian economy will expand by 2 percent this year notwithstanding Dorian’s impact on Abaco and Grand Bahama.
“I’m not that bold,” he said of the CDB’s forecast, “but certainly it gives us confidence we are on the right track.” The deputy prime minister said he also took it as vindication of the Minnis administration’s “fiscal sustainability and consolidation” strategy that had been in effect pre-Dorian.
The CDB’s forecast is also far more upbeat than those provided by the Central Bank of The Bahamas and International Monetary Fund (IMF). The former, which revised its own 2020 GDP growth projections upwards to “flat”, having initially projected a 0.5 percent contraction, said much depends on whether economic activity on other Bahamian islands offsets the loss of Abaco’s tourism income.
The IMF, for its part, backed the Central Bank’s first prediction that the Bahamian economy will suffer a “mild contraction” in 2020.
Meanwhile, Mr Turnquest defended the Government’s planned extra borrowing, which will push the 2019-2020 deficit out to $677.5m, a sum equivalent to 5.3 percent of GDP, as the only “viable option” open to it to finance post-Dorian recovery and restoration efforts.
He admitted that new or increased taxes would further slow an already-struggling Bahamian economy, while eliminating the deficit “in one swoop” would require an across-the-board spending cut of greater than 20 percent .
Repeating several times that no new or increased taxes are being considered, he said: “The Government decided that it will not impose additional tax burdens on Bahamians to cover the cost of recovery.
“More taxes could slow down the already-strained economy as people would consume less given the need to pay more in taxes. Although we have a large budget gap to close in the immediate term, this is not a viable option. Therefore, the Government will not be increasing taxes, or introducing any new taxes, to cover the cost of Hurricane Dorian.”
Mr Turnquest continued: “So, what are our alternative options? Well, we could slash spending by a few hundred million, but that means starving the economy of job opportunities and commercial activities by way of reduced capital and other major projects.
“Large spending cuts would also reduce the resources available to assist the vulnerable with social assistance benefits and other recurrent programs. To balance the budget in one swoop, we would have to cut total expenditure, across the board, by over 20 percent, based on spending estimates at the time of the national budget.
“Indiscriminate cuts like this would affect everyone, and not just in the storm-affected islands. This is not an option. The operations of the Government must continue to function. Again, the Government realised that an economy of our size facing a $3bn hit would be further impacted negatively by massive cutbacks in public expenditure,” he added.
“The bottom line is the only way to finance these extraordinary expenses without breaking the backs of taxpayers, starving the economy of opportunity and draining the Government of already tight resources is to borrow - but only to do so consistent with an articulated plan to bring the budget back in line over the medium term.”
Mr Turnquest again given an indication of how far Dorian has blown the Government off its fiscal consolidation plan by affirming that the 50 percent debt-to-GDP ratio targeted in the Fiscal Responsibility Act will only be achieved in 10 years’ time.
“Yes, we are departing temporarily from our original fiscal consolidation plan,” he conceded. “However, given the options either to raise taxes higher or to cut spending drastically, the Government took what we know to be the prudent decision to raise the necessary resources through increased borrowing - and to focus this borrowing largely to fix the infrastructure and to provide direct support for persons most impacted by Dorian.”
Mr Turnquest also revealed that the Ministry of Finance’s revenue unit, as at early February, had received 2,000 applications under the Exigency Order tax waivers initially put in place for Abaco and Grand Bahama post-Dorian.
“Of this total, over 900 applications were for the importation of replacement vehicles, and over 1,200 applications for relief goods and other non-listed items,” he added.