HUBERT EDWARDS: Facing up to the brutal facts

• In the second of a two-part series, Hubert Edwards questions if The Bahamas is ready to make the sacrifices needed for long-term gain

THE COVID-19 crisis is teaching the world and every country some important lessons. It would not be an understatement to suggest that we have been, for the last 18 months, in the front seat of a masterclass. This is a class taught by an uncompromising, brutally objective and impartial teacher. This teacher is agnostic to race, geography, wealth and all the normal factors that generally represent lines of demarcation. The testing and grading system used is beyond question, its integrity impregnable, it is not about subjective assessments or re-sits but the extent to which one can perform and secure results. Public policy, economics, leadership and governance, public finances, social arrangements and the state of infrastructure, level of economic resiliency and the potency of geopolitics or lack thereof are all elements that are being laid bare for objective assessment. As a result, the average person has developed a deeper, useful and more practical understanding of the workings of The Bahamas and its economy. Going forward, it will become difficult to rationalise underperformance and justify underachievement, given that so many are now exposed to the fundamentals of the country’s economy and have greater insights into the things necessary for driving its effectiveness and those causing its current deficiencies.

Having sat through a year-plus of intense lessons, we should be well prepared for advancing the country. Having intensely debated the economic well-being of The Bahamas and its people, and having secured - or ought to have secured - a clearer view of what is needed for the road forward, it is my proposition that The Bahamas is better placed than at any other point in time to meet the objectives of national growth and development. Failing to get it right at this point will spell significant challenges for the country for many years to come. The teacher is teaching and we have but one obligation, and that is to effectively learn the lessons, implement the changes and be prepared to reap the benefits, or do otherwise and reap accordingly. This state of affairs demands action, and in some instances, very urgent action. It is against this backdrop that the political parties are offering solutions and making propositions for change. Without speaking to the efficacy of the ideas being offered, what is important from a broader perspective is to ask how exactly The Bahamas will be able to afford these plans, whatever they may be. Having regard for the state of the county’s finances, the expectation of continued growth in borrowing, and the expected continuation of the global health and economic crisis, one must contemplate how truly attractive any particular proposition is outside of a careful analysis of the proposed cost of these initiatives. It is important to consider the timing of the election. It is set two-and-a-half months deep into a settled fiscal year with a projected deficit of $951m and, as stated before a gross borrowing need of $1.8bn, of which $1.4bn is for servicing debt. With almost ten months to go from the date of the election, any brand new initiatives that do not fit neatly into existing budgeted expenditure are likely to be unfunded and will at best be up for serious implementation only within the next budget cycle.

Objective analysis suggests that next year will be tough, and the winning party forming the administration will be significantly constrained in its efforts. I think it is time for all to consider what role the entire country will play in the process towards recovery. A critical and important element is a reflection across all sectors as to how each will contribute to this important and urgent process. James Smith, the former minister of state for finance and ex- Central Bank governor, said: “From a policy perspective we are going to be facing enormous challenges for a couple of years out unless something extraordinary from the outside comes in to change our outlook. Bahamians can only cross their fingers and hope that, like in the past, a small miracle happens”. The challenge in this instance is that the “outside” is not as primed as in past crises. This time, with a heavier load to carry along a more perilous path, The Bahamas must urgently uncross its fingers and take a serious look within with the view of creating a series of homegrown miracles to move it forward. The risk of not doing so is potentially grave.

Are we truly committed?

Let us ask: To what extent are we committed to work in our own areas of competence to contribute to the building of the country post- September 16, regardless of which party wins? To what extent have we identified the imperatives for moving the country forward, having regard to the fact that The Bahamas and the rest of the region will undoubtedly experience a long, drawn-out recovery? This recovery for us is likely to display behaviours akin to the 2008 financial crisis, which we have not yet recovered from in real terms. As mentioned above, the proposals being outlined by the parties have not been costed out. There is no clear understanding as to how the existing narrow fiscal space of the Government will affect these plans and initiatives. This is the main reason we will often hear liberal use of “we will implement over five years” or “we will look at it after’ x’ time”. Given the level of the debt stock, there will no doubt be serious challenges. Given the proportion of national earnings that goes to debt servicing, and the fact that the level of capital investments will remain constrained, there is no question that the winning party will be faced with structural adjustments or a serious debt rescheduling.

Every initiative has to be afforded, and paid for with earned (preferably) or borrowed funds. The party that wins and forms the Government must become acutely aware of where it will secure growth from, primarily because in the face of no growth there will be pressure on the need to borrow more. There will be limited resources available for investments, unless the private sector steps up in ways that are unprecedented. Even with greater use of public-private partnerships, the Government will have to find funds to drive the economy. Where will we find these resources? The options for raising funds are always limited for countries. The government can either sell assets, raise taxes or borrow money. Given that range, it is clear that the options are significantly limited for The Bahamas, and the much-dreaded thought of new and/ or increased taxes remains a real possibility going forward. This is one of the harsh realities faced by the country. This is not a popular or comfortable matter for discussion. It represents an important issue which policy makers will be very constrained in embracing due to its political implications. It is indicative of the extent to which leading will require a very delicate balance. The truth is that many of the decisions to be made may be unpopular and therefore will cause tension. But failure to make the tough decisions will be a fatal mistake for the economy and for future governance. Making the tough decisions will create a level of discomfort for the administration. Such is the gravity and seriousness of the issues faced at this time.

Historically growth has not been very robust. While it will be a critical element going forward, growth from existing or new sectors is at best realizable in the mid-term and, more likely, long term. Certainly there are areas where quick wins may be possible, but mostly these are longer-term issues at play. How will we fare over the next three years? It is my view that the direct effects of COVID-19 could be with us for another 12 months at least. This means that the path to full economic recovery still faces significant headwinds. When one considers the implications of continued disruption of supply chains, it should become patently clear that challenges are many. As we focus locally, our most important trading partner, the US is flirting with the rumblings of a “bubble” about to pop. There is a clear indication that assets in the US are highly inflated. This inflation is being actively imported into The Bahamas given the proportion of goods and services purchased from abroad. Beyond the normal generalized impact on the economy, why is this important? Citizens and residents are experiencing one of the most sustained periods of high employment and dramatic loss of income ever. This means an increase in the cost of living because of imported inflation, which increases the potential that there could be significant economic scarring on the population, especially for those in the lower socio-economic strata. While the effect will be greater for individuals, the private sector will not escape simply because they have the ability to pass on costs. One must consider the capacity of the private sector to stay in business and invest going forward. The question remains how ready are we to really battle through the next three years, supporting whoever is leading the country as we work to claw ourselves back, tooth and nail, to stability and greater resiliency. Are we ready to discuss austerity measures? Are we comfortable with new tax regimes? Are we at the place where we are willing to “invest” and “suffer”over the next five years so that the back end of the decade will bear the fruits of our sacrifice? Are we truly ready for the reforms, which COVID-19 has helped us to better appreciate, and are we clearly contemplating how will they will influence governance?