By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government was yesterday warned not to be “penny wise and pound foolish” by cutting expenditure on vital infrastructure projects simply to ensure it meets its annual fiscal deficit targets.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that this was “not an area where I’d like to see the Government pinch the Budget” after the International Monetary Fund (IMF) in its full Article IV report identified “under-execution of capital projects” as a key factor in the Davis administration containing the 2023-2024 deficit to $186.7m.

He added that cutting much-needed investment on infrastructure such as roads, bridges, docks, schools, hospitals, clinics and even airports, plus in areas such as digitisation, would merely increase the cost of such projects to Bahamian taxpayers when they were eventually initiated plus delay creating the platform for further economic growth.

“That, to me, is not the area where I would like to see the Government be penny wise and pound foolish,” Mr Bowe told this newspaper. “Any delay in infrastructure projects increases the price and delays your progress in national development.

“If you think about where you’re getting growth in the economy, where you are getting more resilient, that requires expenditure on capital projects. It’s not an area where I’d like to see the Government pinch the Budget. It’s where I’d like to see them make a concerted effort to modernise infrastructure.”

The Fund, in its full 2024 Article IV report on The Bahamas, said of the Government’s efforts to curtail the ‘red ink’ associated with its public finances: “The fiscal deficit fell to 1.3 percent of GDP in fiscal year 2023-2024 from 3.8 percent of GDP in the previous fiscal year.

“Improved tax compliance, particularly in property taxes, a cyclical rebound in revenues, yields from new policy measures - notably Business Licence fees and departure taxes - and efforts to contain expenditure all supported the adjustment.

“Expenditure fell by 1.8 percent of GDP (gross domestic product) due to lower spending on goods and services and transfers to public corporations, and an under-execution of capital projects. At the end of the fiscal year, the central government debt-to-GDP ratio was 78.8 percent of GDP.”

The Government’s initial projections for the 2023-2024 fiscal year called for capital spending to total $364.6m or the equivalent of 2.5 percent of GDP. However, successive administrations have curtailed capital spending to help control the deficit and achieve close to target, most notably the Minnis administration, which in 2018-2019 slashed spending on such projects to $223.4m or just 1.7 percent of GDP.

The Davis administration has also increasingly relied on mobilising private investors and capital via public-private partnerships (PPPs) to finance and undertake major infrastructure works, such as roadworks in Exuma and Eleuthera, recognising both the limits of the cash-strapped Public Treasury while trying to minimise the burden for Bahamian taxpayers.

The Prime Minister, meanwhile, yesterday pushed back against the IMF’s forecasts that The Bahamas is reverting to its long-run low growth average of around 1.5 percent per annum and will not meet its 50 percent debt-to-GDP target for 2030-2031 without introducing new and/or increased taxes.

Placing faith in the Government’s own modelling, Philip Davis KC said: “First of all, that is their prediction. We have our own predictions. We don’t see a slowing down in the economy; not yet.” He argued that, while The Bahamas does face “headwinds”, these relate to historical debts built up over successive administrations.

“There are some headwinds for us,” he added, “but it’s not in the economy. It’s the obligations that have been incurred over the years that are holding us back. We see the observations made by them, but we will ensure our economy continues to grow and not slows.”

Asked about the Government having maxed out its ability to borrow from the Central Bank as at October 2024, Mr Davis replied: “That’s another issue between the fiscal authority and the monetary authority and we are dealing with that as well.”

The IMF, assessing the prospects for the Bahamian economy, said in its report: “Growth is expected to slow to the long-run potential growth rate (1.5 percent) as capacity constraints in the tourism sector become binding. Barring shocks to global commodity prices, headline inflation is expected to converge to around 2 percent over the medium-term.

“The current account deficit is expected to narrow as slower growth in tourist arrivals is more than offset by lower commodity prices. Risks to the outlook for activity are balanced. There are upside risks from the execution of announced public and private projects in infrastructure and hotel construction, or faster-than-expected growth in the short-term rental market.

“Downside risks revolve mainly around fiscal vulnerabilities, including those from a large stock of short-term domestic debt - gross fiscal financing needs are expected to average 19 percent of GDP over the medium-term - and the ever-present risk from natural disasters.”

Pointing to what it described as The Bahamas’ “long-standing challenges”, the IMF said: “Income per capita continues to diverge from that of the US and has underperformed that of Caribbean peers. Expensive and unreliable energy, shortages in skilled labour, difficulties in business formation and expansion, and the repeated impact of natural disasters have all weighed on the economy.

“Central government debt shot up during the pandemic and borrowing costs remain uncomfortably high. The archipelago is also highly susceptible to natural disasters and rising sea levels, both of which underscore the need for increased investments in resilience and building fiscal buffers so as to better respond to climate-related shocks.”

Kwasi Thompson, the Opposition’s finance spokesman, in a statement responding to the IMF’s Article IV report said: “The IMF’s assessment represents yet another clear indication that this administration lacks a coherent and documented economic and fiscal plan to get the country back to sustained and inclusive economic growth – the kind of growth that is necessary to improve real household earnings and make things better for all Bahamians.

“Despite the robust economic rebound from the COVID-19 pandemic, the country has reverted back to a low growth/no growth economic trajectory just as we in the FNM had warned the Government about. The Davis administration has neither the will, nor the interest, in pursuing the kinds of structural reform that is necessary to unlock the incredible potential of The Bahamas and the Bahamian people....

“We agree with the IMF that the Government will not meet its current deficit and debt targets without further policy measures. The current PLP administration is operating with no established policy anchors that would allow them to achieve sustained balanced Budgets,” he argued.

“We maintain that discussions around fiscal reform must speak first to the focused elimination of wasteful public expenditure while looking for ways to consolidate spending. These reform efforts must also be accompanied by the full implementation of the Freedom of Information Act, and the timely financial reporting of all financial agencies and state-owned enterprises (SOEs).”