BUDGETING TO FACE FUTURE CHALLENGES



INTRODUCTION


For a number of years I have had the privilege of commenting publicly (radio, television and in print) on the national budget, the financial services industry and matters relating to the wider economy. Over that time, due to whatever the prevailing circumstances, there was always some tension in opining. Over this time though, I have always held to a set of important principles, be honest, be fair, be balanced, do not be afraid of others disagreeing with you and focus on what is in the best interest of country.


I remember sitting on panels with brilliant local minds and concluding that the then budget was “transitional”, “we are at a crossroad”, “has some good things but doesn’t go far enough”, or “lacking in growth strategy”. Often the final outturn of these budgets makes each of these conclusions a falsity or an understatement. The tension I feel this year comes from trying to reconcile my instinctive conclusion, that this budget comes at a point in time which represents a “tipping point” for the country and what was presented. Because that is the case, the main challenge is being fair, objective and balanced, trying to ensure that the positives in the budget are not consumed by any perceived inadequacies in responding to the broader implications of the current environment.


Why settle on the idea of a tipping point? The term is defined as a point at which a series of small changes or incidents becomes significant enough to cause a larger, more important change. Over a number of years, the county’s economic system has shown some important challenges which tend to become more prominent during periods of economic downturn or disasters. From endemic but seemingly increasing vulnerability to weather events, chronic anemic growth, to structural deficits and weaknesses, low productivity, to now high debt concentration of debt; there are enough elements moving in generally negative direction with the collective power to change the economic wellbeing of the country and its citizenry, in very fundamental ways, a tipping point. The decisions made or not taken at this point could have serious repercussions in the future. You may quickly retort that it is normal. That is generally the outcome of decisions (made actively or by default). However, let us avail ourselves of a slightly different perspective.


Malcolm Gladwell in his book, The Tipping Point, defines the term as "the moment of critical mass, the threshold, the boiling point”. Gladwell’s definition has a level of authoritative simplicity and seduction that is very hard to ignore. Critical mass, boiling point, threshold. Within the context of the economy, anyone who is paying attention can readily identify any number of economic and fiscal factors that have crystallized, or are quickly crystallizing, into an indisputable state of “critical mass”. The current and projected debt stock of over $10B springs readily to mind. The casual observer can identify a number of matters that can easily be concluded, without much argument, to be at their “threshold”, as examples, spending on social services, expenditure, underlying infrastructure such as hospitals, the size of the public service and its attendant financial obligation. Finally, it does not require an overactive mind to contemplate that there are matters that have or are speedily approaching a “boiling point”. For example, interest on debt, the adequacy of the existing tax regime, perception of differential treatment between local and foreign investors.


In analyzing the budget, how does one remain fair to the current administration, support, highlight the positives of the budget, and comment objectively on those areas that in your opinion are challenging? I believe that you do so by having an unbending desire for the country to win, divorcing yourself, as best as possible, from all derivative outlooks and agendas and focusing on what is in the best interest of the country and its people. In other words, work to be unconstrained by the idea of winning arguments, knowing very well that when we argue only to win, rather than to build consensus and capacity for improving; generally speaking, everyone loses! It is my firm position that The Bahamas is at a critical tipping point and the first order of business must be a fundamental shift in the narrative. While the budget is generally set within the confines of one year, it does convey and highlight policies and programs to be implemented with multiyear impact. The idea of the existence of a tipping point actively pulls an analyst into asking, will this inure for the longer term? Does this solve, going forward, the challenge observed here? Is this suggesting a change in trajectory of matters deemed negative? It is for this reason that a careful assessment of this budget will derive many points of tension. It may also explain the nature of commentary heard since the delivery of the communique.


In strict terms, a tipping point is not necessarily negative. Consider what seems to be an increase in entrepreneurship at the MSMEs. Think about what opportunities lie in finally getting a handle on the ease of doing business. Contemplate how the current environment sets up a national call for significant shifts in behaviour and a march to productivity and meritocracy. Appreciate for a moment the valuable insights that this particular moment is shedding, essentially laying bare the soft underbelly of the economic structure making it ripe for unobstructed study. This article attempts to widen this discussion, highlighting the positives and in a balanced manner draw attention to opportunities and potential headwinds.


THE NEW BUDGET CYCLE


In my previous article, written before the reading of the budget communique, I outlined areas which I thought would be given due consideration. On review, most of the points highlighted were addressed in some manner. As stated then there are concerns as we move into the budget exercise. These concerns are generated out of the fact that we are in the midst of a pandemic, significant economic loss - the country losing approximately 20% of its GDP, high levels of unemployment, historical and increasing levels of debt. Further matters include uncertainty around the normalizing of economic recovery, though positively impacted by vaccination campaigns underway both in the country and in our markets of interest. The concerns extend to potential headwinds for the financial services industry against the backdrop of an embattled tourism sector.


In that article I noted that one overarching and important problem which the budget had to solve is what I termed the “Debt Trap”, a matter that can only be fixed, without significantly hurting the economy and country, by experiencing sustained economic growth. The reality is that the debt can be reduced. However, without increased revenue this would necessitate a treatment of austerity measures that could be very painful for the country, its citizens and residents. In my projections, I stated that the budget address the following:


● Increased taxes.


● A clear program of debt management with attendant impact on areas such as capital spending;


● Increased support for the social sector to address increased unemployment and displacement of workers.


● Continued support for the private sector especially MSMEs through the auspices of the SBDC.