From ‘burners to earners’ as debt at 100% of GDP

• Statistics shows debt equals economy output

• Economy shrinks over $1.64bn in real terms

• Inability to grow ‘comes back to haunt us’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must rapidly “convert tax burners to earners” following official confirmation that its direct national debt is now almost the same size as the economy, a governance reformer has warned.

Robert Myers, the Organisation for Responsible Governance’s (ORG) principal, told Tribune Business that converting loss-making state-owned enterprises (SOEs) and unproductive public sector workers into profitable, productive contributors was imperative after COVID-19 slashed this nation’s economic output by $1.641bn in real terms in 2020.

The government’s Department of Statistics, in data released on Friday, confirmed - to no one’s great surprise - that The Bahamas’ gross domestic product (GDP) contracted by 14.5 percent to $9.665bn last year after the tourism industry was shut down for much of 2020 while the rest of the economy was also restricted by COVID-related lockdowns and associated measures.

When measured in nominal terms, which includes inflation’s impact on price levels, the economic contraction was even greater at 24.7 percent or $3.256bn. This produced a total Bahamian economic output of $9.908bn in nominal terms, the lowest GDP level for at least nine years, which showed that around a decade of economic growth has been lost to COVID-19.

The Department of Statistics’ data, when presented alongside the government’s $9.503bn direct debt as disclosed in its recent nine-month “fiscal snapshot” to end-March 2021, thus confirms that the sums owed by this nation to both local and international creditors almost match the economy’s size.

This means that The Bahamas’ debt-to-GDP ratio, a key indicator of the country’s indebtedness and ability to service its liabilities, stands at 95.9 percent and 98.3 percent in nominal and real terms, respectively.

The data further highlights the extent of the economic devastation inflicted by COVID-19 just one day before the prime minister unveils the government’s 2021-2022 budget in the House of Assembly. Given that the $9.503bn figure includes just the Government’s direct debt, and not contingent liabilities such as debt guaranteed on behalf of state-owned agencies, the total national debt likely exceeds GDP.

Marlon Johnson, the Ministry of Finance’s acting financial secretary, last night downplayed the debt and debt-to-GDP ratios stemming from the Department of Statistics report on the basis that economic output continues to improve since the tourism industry and others reopened in late 2020.

Describing the 2020 data as “transitory” and representing a specific point in time, he told Tribune Business: “The Ministry isn’t particularly concerned about the debt ratio. That represents where the economy was when there was a substantial contraction due to COVID-19. It’s a transitory number. The size of the economy has rebounded because it has started to re-open.

“The size of the economy has caught up by some measure with the contraction. It’s no cause for concern. It’s not a static ratio. It’s not set permanently as an indicator of the state of the economy.” However, the Government’s debt has been increasing at a much faster rate than the economy’s post-COVID rebound.

Chester Cooper, the Opposition’s deputy leader and finance spokesman, also picked up on the implications of the GDP data for The Bahamas’ national debt and attendant ratios. “Using the numbers released for analysis shows that we are in a frightening place,” he said.

“With $9.5bn in direct debt at the nine-month mark, according to the fiscal snapshot, we are certain to see a forecast debt-to-GDP ratio of well over 100 percent for this fiscal year when the Budget communication is delivered. We note that the approved forecast for the entire year was $9.5bn.”

The latter figure refers to the projected national debt at end-June 2021, which is when the current fiscal year closes, with Mr Cooper suggesting the timing of the Department of Statistics’ GDP data release was designed to “dull the pain for the Bahamian people” ahead of potential austerity measures - including new and/or increased taxes - that are likely to be unveiled in the Budget.

Mr Myers, though, argued that the twin blows of Hurricane Dorian and COVID-19 have been worsened by “poor leadership” over the last 40 years that has failed to execute a coherent economic growth strategy for The Bahamas.

Asserting that this has “come back to haunt us”, he added that successive administrations have instead expanded the size of the Government and public sector to resolve the country’s employment issues due to an inability to facilitate private sector expansion.

“I’ll tell you something else I’ve told people in politics,” Mr Myers told Tribune Business. “You are going to have to go through some austerity. You are going to have to convert the burners to earners. Those contributing taxes are earners, and those burning up and consuming taxes are the burners. Government, SOEs are the burners.

“We’ve got to move the burners to earners. We’ve got to substantially grow the economy by 7-8 percent per annum, and convert those burners to earners. If you take 5 percent of the burners and move them to earners, not only are you going to increase revenues but you will reduce expenditure. It’s a double benefit to the economy.”

Such “burners” include the likes of Bahamasair, the Water & Sewerage Corporation, Airport Authority and Broadcasting Corporation of The Bahamas, all of which consumer multi-million dollar taxpayer subsidies. The largest such consumer, of what is a $420m collective annual subsidy, is the Public Hospitals Authority (PHA).

Besides the SOEs, Mr Myers argued that The Bahamas also needed to progressively reduce a civil service that a recent Inter-American Development Bank (IDB) report said was 40 percent over-staffed by transferring excess workers to a growing private sector.

“Moving people to the private sector where they become earners decreases expenditure, increases revenue and increases GDP,” he said. “The 40 percent overweight in the public sector, that are unproductive in the public sector, if they become productive in the private sector that’s a huge win for the Government, the country and GDP.

“The problem is we haven’t had an administration in the last 40 years that has really focused on that. They’ve not had a growth plan that’s really worked. Their inability to create growth in the private sector has caused them to absorb more people into the public sector to keep unemployment down. That, my friend, has come back to haunt us.

“That is why the Government is over-sized. We’ve not had good leadership and a strong GDP growth plan that has been executed well. If we don’t get that, and keep on the same path we’ve been on for 40 years, we will fail and we won’t be the first.”

The Department of Statistics, in its report, used two measurements to assess Bahamian GDP in 2020. The first, known as the “production approach”, and which measures gross value added across all industries, found that financial services/insurance and real estate were the two sectors least impacted by COVID-19.

Financial services and insurance actually saw an increase in their gross value added contribution to the Bahamian economy in 2020, which rose from $1.058bn the prior year to $1.17bn. Real estate, meanwhile, saw only a slight decline from $1.678bn in 2019 to $1.649bn last year.

Tourism and related services, not surprisingly, suffered the greatest impact. Accommodation and food services “contracted by $820m (71 percent) amid the sudden stop in tourism activity, due to travel restrictions and border closures”, falling from $1.149bn in 2019 to $328.3m.

Transportation and storage’s contribution to GDP declined by 70 percent or $316m year-over-year, while the wholesale/retail trade and auto vehicle repairs were lower by $176.8m or 12 percent while administrative and support services were off by $115m or 43 percent.

Using the “expenditure approach” to measure economic output, the Department of Statistics’ preliminary figures showed a $1.8bn or 44 percent fall in The Bahamas’ exports of goods and services last year to $2.273bn due to the drop-off in tourism business.

Imports also contracted by $2.4bn, the decline matching that of exports in percentage terms, due to lower levels of economic activity. Total imports fell to just over $3bn.

“Household consumption contracted by $309m (4 percent), a direct impact of the increase in unemployment and reduced disposable income. Government’s increase in social assistance supplemented households’ loss of income and therefore minimised the reduction in this sector,” the Department of Statistics said.

“General government consumption declined by $313m (17 percent), associated with a drop in purchases of goods and services. This was a direct result of the closure of a large percent of Government offices in an effort to curb the spread of the pandemic.

“Gross fixed capital formation decreased by $1.1bn (36 percent), which was broadly based across all components—although led by the buildings and infrastructure portion which experienced a reduction of 37 percent or $839m.”

Comments

Dawes says...

This is obvious, but this has been said for at least 20 years and still whoever is in power is unable to manage to even get remotely close to this. But don't worry, i am sure they will be thinking of some new taxes to help deal with any shortfalls.

Posted 25 May 2021, 3:11 p.m. Suggest removal

tribanon says...

Like Marlon Johnson you seem politically motivated in playing done the fact that the current output of our economy (GDP) now falls far short of the level necessary to both service and repay our ever growing and increasingly costly national debt. This is a most serious matter that should not be trivialized in any way whatsoever.

Because the Bahamian dollar is not a hard currency like the US dollar, we do not have a mechanism for monetizing our country's debt by simply printing more fiat currency. And unlike Puerto Rico, we do not have an Uncle Sam who will come to our rescue when our ability to borrower from foreign lenders dries up. We are now well on our way to becoming the next Haiti or Venezuela of our region of the world.

This isn't scaremongering on my part, but rather harsh reality.

Posted 25 May 2021, 3:46 p.m. Suggest removal

Dawes says...

I am trivializing it because any nation that can not run a power company for profit, when the customer pays some of the highest fees, and new developments must buy the transformers that BPL uses, is a joke and obviously unable to run anything with sense, and as such i don't hold much hope for us to do what is necessary to get out of the mess we are in.

Posted 25 May 2021, 4:55 p.m. Suggest removal

tribanon says...

Fully understood.

Posted 26 May 2021, 11:55 a.m. Suggest removal

tribanon says...

And meanwhile Minnis and John Rolle are mumm about the increasingly dire outlook for our country's foreign currency reserves and the pressure on maintaining the 1 for 1 peg of the Bahamian dollar to the US dollar.

Posted 25 May 2021, 3:27 p.m. Suggest removal

KapunkleUp says...

"Their inability to create growth in the private sector has caused them to absorb more people into the public sector to keep unemployment down." - That pretty much sums up the huge piles of BS the previous (and current) governments are responsible for. Raising taxes ain't the answer every time you run out of money. Creating an environment that promotes new business startups and expansions also creates increased tax revenue - without having to increase taxes. And all the government owned enterprises.... enough said.

Posted 25 May 2021, 4:58 p.m. Suggest removal

GodSpeed says...

> "Debt At 100% Of GDP"

...well now we are like every other country on Earth.

Posted 25 May 2021, 6:53 p.m. Suggest removal

tribanon says...

Except that our country needs to import just everything and doesn't have a hard currency of its own to pay for its imported goods and services, and also service and repay its external debt denominated in the hard currencies of other countries.

Our Bahamian dollar has no value outside of the Bahamas and is, for all intents and purposes, 'artificially' pegged at BAH$1.00 = US$1.00 based entirely on our country's ability to maintain a minimum level of foreign currency reserves in relation to its foreseeable foreign currency needs. And that means, unlike the US and many other developed countries, we have no means of monetizing our country's foreign currency denominated borrowings by simply printing more fiat currency.

Our country's diminishing ability to borrow from foreign investors in the international bond markets on affordable terms to help buttress our dwindling foreign currency reserves is a most serious threat to the currently pegged value of the Bahamian dollar. And the lack of confidence being shown by the international rating agencies and foreign credit markets in the Minnis-led FNM administration does not bode well for the Bahamas.

Posted 26 May 2021, 12:47 p.m. Suggest removal

donald says...

When is government going to get out of private business. I believe government loses money with an airline, bank, hotel, cable, water, electric, etc. Create private sector competitors. Too much opportunity for corruption when public funds are used for private business.

Posted 25 May 2021, 8:51 p.m. Suggest removal

tribanon says...

And it's the accumulated losses over many decades from these very same hemorrhaging government controlled entities, combined with the outright corruption, fraud and waste by so many of our senior government officials, that has brought our country to its knees with no ability to withstand or cope with any kind of crisis. Small wonder the value of our Bahamian dollar is now being threatened like it has never been threatened before, and may well not survive the threat this time. Voters really need to remove Minnis, D'Aguilar and Bannister from the political stage at the earliest possible opportunity.

Posted 26 May 2021, 1:09 p.m. Suggest removal

oceantonguer says...

Stop wasting your time bickering about the minutiae of Bahamian politics, take a step back and realise the Bahamas is the most isolated economy in the western hemisphere - the only one not to be a WTO member. In this it joins a select group of nations such as Somalia, Yemen and North Korea........what company to keep!!! And how ridiculous when only 50 miles off the coast of the largest and most vibrant economy on earth. It is a miracle we have any economy at all when we behave so pigheadedly stupidly and assume tourism from pretty beaches alone will always be enough to sustain a population of almost half a million people

And why are we so isolated? Because of the dark alliance between on the one hand the white knights, desperate to keep their monopolies on island industries which they use to inflate prices and squeeze money out of local residents until the pips squeak. And on the other hand, the politicians and unions representing a public deeply fearful about their own appalling lack of skills and competitiveness, barely literate, barely numerate and totally ill-equipped to compete with the foreign labour whose presence on the island terrifies them

If the Bahamian economy was cracked open just an inch the amount of foreign investment activity that would pour in would double the economy in barely two years and solve all these problems. It would mean many Bahamians needing to re-train to gain the skills they have never been given. It would mean some painful adjustments in certain areas - but labor laws could be kept overwhelmingly protective of local labor for the most part. It would mean some more foreign faces. It might also mean grocery prices less than the now - where we are charged three times Miami prices.

It would mean becoming a REAL ECONOMY and not a glorified beach bar of a nation

Posted 27 May 2021, 5:02 p.m. Suggest removal

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