A Difficult Budget at a Very Difficult Time
The budget, under the theme “The Way Forward", represents a very complexly weaved story indicative of the delicate challenges the country is faced with. It is becomes clear the constraints faced by government and the extent to which the administration was committed to addressing the social pressures faced by citizens and residents. Surprisingly there was no mention of digital assets to reflect the stance outlined in the recent whitepaper of it forming a critical element of the economic recovery. With its resource rich nature, indications as to how this might translate into improved government revenue would have been useful, at least in how it might impact the next two fiscal years.
Overall the budget was excellent in dealing with social support and seeking to protect various segment of the population. One might raise and argument of sufficiency but having regard for the challenges it is fair to conclude that the government made a great effort in this regard. The tension with tis is that given the decision to not hike taxes at level it could have, these measures placed pressure on the limited fiscal space.
Again, this is indicative of a very delicate balancing act to be performed as we seek to navigate the tensions created by the high inflationary environment, a recovering economy with revenue performances buoyed by inflation and, therefore, temporary to the extent that high inflation lasts, the contentious issue of tax increases and its adverse impact on political capital, and the pressure of having high debt with associated high yields and high rollover risk. The tensions are real. This is captured in the prime minister’s statement, “The perils are real – but so is the promise of what we can become, if we move forward together”. There are definitely opportunities for progressing but all aspects must be managed masterfully.
The Big Miss
Against that backdrop the biggest miss in the budget presentation by the PM might be in not having a fuller discussion around debt and the debt management strategy. The sole mention in the prime minister’s presentation was, “we have appointed a private sector Debt Management Committee, assisted by an Independent Financial Advisor, who will devise clear objectives, and a strategy to manage the high levels of debt accumulated in the past three years.” The fact that there is not yet any tangible outcome to report might not be well received by the credit market. The statement suggest that there is work to be done. Juxtaposed against the importance and state of the debt stock, a more tangible position would be preferred. Contextually, projected deficits for FY2021/22 of $756.6 million and 2022/23 of $564.3 million easily makes this case. Laying out a persuasive narrative around the debt management - an issue which seemingly the IMF and the administration is yet to be on the same page - would have been valuable. There is still an opportunity to do so in the sectorial debates and this should be exploited to maximum effect. We should lot however underestimate the influence of first pronouncements.
This exclusion might represents the most significant area of risk to government overall plans as improvements in our credit circumstances of urgently needed to start creating fiscal space to create greater flexibility. This should also be seen through a credit worthiness lens. If the question is raised how this budget has improved the credit worthiness of the country, a honest answer would be that the projected trajectory is positive but overall the needle will not move significantly. The inability to do that at this stage demands greater focus on lenders and the credit market.
Supplemental Budget Allocation
Further to the preceding, the supplemental budget ask of $252M for outstanding arrears, while done out of necessity, is indicative of the government’s liability management process and carries important credit market information. As part of a broader discussion around debt management, targeting especially external lenders, a well-developed position on improved effectiveness in managing liability, going forward, will have positive implications and add credibility to the debt management process.
The focus on small business development, the role the Bahamas Development Bank will play and leveraging the maritime industry for opportunities are very positive. The statement “I wish to highlight the fact that even though this Budget represents an important part of the Government’s overall strategy to grow the economy, it does not represent the entire effort. Aside from the allocation of resources from the Consolidated Fund, the Government intends to leverage other mechanisms to bolster economic activity and stimulate job creation”, raises question on the fullness and rigour of the budget and the extent to which any “additional portions of the effort” might have cost implications which are not yet captured. There will certainly be opportunities for clarification in this regard.
Family Island Development
Efforts to target and fund development in the FIs is very positive and creative. This together with the focus on agriculture should auger well not just for FI economies but the national economy. These are areas in which national development can be spawned and the focus is in the right direction. Support for citizens, investments in home ownership and real estate, and rental properties in FI are excellent policy shifts. Alongside the social support spend this has with significant long-term value for wealth creation and transforming persons in less affluent groupings. These initiatives should be seen in that light but there should also be an understanding that they create friction for government resources.
This is a difficult budget at a very difficult time. Overall, there has been useful signals in changing the trajectory of the deficit and identifying a broader revenue space without the need for new taxes. Greater focus is needed on debt management was needed, there may have been opportunities to take a bit more from SOEs and there is a need for a bit more granular assessment of the $2.8B in revenue, having regard for the current inflationary impact and global action to tame same. The administration should be commended for its attention to social spend and attention to Family Island and Agriculture.
Hubert Edwards is the Principal of Next Level Solutions Limited (NLS), a management consultancy firm. He can be reached at email@example.com. Hubert specializes in governance, risk and compliance (GRC), Accounting and Finance. NLS provides services in the areas of enterprise risk management, internal audit and policy and procedures development, regulatory consulting, anti-money laundering, accounting and strategic planning. He also chairs the Organization for Responsible Governance’s (ORG) Economic Development Committee. This and other articles are available at www.nlsolutionsbahamas.com