Friday, February 19, 2021
By NEIL HARTNELL
Tribune Business Editor
The prime minister last night slammed as “absolutely untrue” assertions by the opposition’s leader that The Bahamas is headed for an International Monetary Fund (IMF) supervised restructuring.
Dr Hubert Minnis, in response to suggestions by Philip Davis that the country is heading towards an IMF structural adjustment programme (SAP), told Tribune Business in a statement that the government was not considering such a last-resort option.
“It is absolutely untrue that the government is headed for, contemplating or even in need of any such IMF facilities,” the prime minister blasted. “Despite the very real and critical challenges facing the country and its citizens, the government is executing its Resilient Bahamas plan that was passed by Parliament in the last budget.
“The government is meeting its commitments and making good on its promise to provide historically high levels of social support for those in need. In fact, if the leader if the opposition would take the time to read the IMF’s Article IV report on The Bahamas, he would note that the fund itself has pointed out that the government has been taking the appropriate approach to address the social and economic needs of the country.”
Dr Minnis said he will “have much more to say” when the mid-year budget is tabled in the House of Assembly this coming week. He lashed out after Mr Davis yesterday said he felt the government was headed towards an IMF bail-out, or restructuring, that would impose austerity measures the likes of which have never been seen before.
“The situation is desperate,” Mr Davis said of The Bahamas’ economic and fiscal position. “This government is out of money, crashing on the rocks. Bahamians are suffering terribly. The prime minister who is now also the Minister of Finance has no idea how to manage this economic crisis, has no answers and no plans for the way forward.
“I think our financial challenge to-date is leading to an IMF restructuring loan with this government. That step for a Davis-Cooper administration would be the last resort. We would have the opportunity as a new government to reverse a lot of trends and to implement our own economic plan, which has as its overarching principle growing the economy and identifying natural resources that could help us address our immediate debt burden. So, we have a plan that hopefully what we meet will give us the opportunity to buy the time to do what we think is necessary.”
Mr Davis argued that the Government should negotiate to delay or defer payments on its $9bn-plus debt that are coming due, and “to restructure our debt to allow us more headroom”. The Government has already being doing the former, and Mr Davis gave no specifics or details on the Progressive Liberal Party’s (PLP) plans.
However, it is also uncertain whether Dr Minnis’ response will ease fears among the private sector and Bahamians generally about the country’s near and medium-term economic and fiscal prospects. Of particular concern is the timing and extent of any tourism rebound, as this will be critical to generating jobs, incomes, economic activity and foreign currency inflows to maintain the US dollar peg.
Some observers have already speculated privately that unless The Bahamas achieves consistent, rapid GDP growth far in excess of its 1-2 percent average over the past 14 years, the country could ultimately find itself in the IMF’s embrace with a national debt forecast to hit $10.4bn by June 2022 and $900m-plus deficit for its next fiscal year.
An IMF structural adjustment programme would inflict harsh austerity measures on the Bahamian people and economy, and would likely involve slashing the size of government by deep cuts to the civil service as well as new and/or increased taxes and cuts to public services and other forms of spending. Other PLP election candidates have also suggested this is where The Bahamas is headed.
Despite its relative praise for the Minnis administration’s handling of the COVID-19 pandemic, the IMF’s recent Article IV report also exposed the harsh austerity Bahamians face post-COVID - with or without a so-called structural adjustment programme - by urging the government to increase its “net income” by more than $300m over four years.
The fund argued that strict fiscal measures are required to get the national finances back on track over the next decade to meet the Fiscal Responsibility Act’s targets following the debt and deficit blow-out produced by the pandemic and Hurricane Dorian.
The Washington DC-based organisation, while admitting that new and/or increased taxes and deep spending cuts were not practical in the near-term as this would only depress the Bahamian economy further, setting back its post-COVID recovery, warned that major adjustments will be required in the mid-2020s to ensure The Bahamas’ hits its 50 percent debt-to-GDP target ratio by 2030-2031.
“To achieve the debt target by fiscal year 2030-2031, staff recommended additional fiscal effort of about three percent of GDP over four years starting in fiscal year 2022-2023, and a constant primary surplus of about five percent of GDP thereafter,” the IMF urged.
“To preserve credibility, the authorities should start preparing measures and communicate a timetable to implement them once the pandemic-related uncertainty subsides.” The term “fiscal effort” is defined as “the profit a government collects”, or the positive difference between revenues and spending, estimating what the Public Treasury can collect and the government’s capacity to achieve this.
With one percent of Bahamian GDP equivalent to more than $100m, the IMF is thus recommending that the government must generate more than $300m per year in extra “net earnings” per year for a four-year period from 2022-2023 to bring its debt ratios back in line with the Fiscal Responsibility Act targets.
And a five percent primary surplus would require the government’s revenues to exceed its recurrent (fixed cost) spending by more than $500m per year even with debt interest payments stripped - a level of performance that The Bahamas has never come close to achieving post-independence.