The world started to pay close attention to the COVID-19 sometime around the beginning of 2020, as it ravaged the Wuhan Province of China. The news was dreadful, scary and the concerns were many. However, it was far away and there was some level of comfort in that fact. In the minds of many, there was the hope for a short-lived event but thoughts of its potentially devastating effects were clear. Over twenty months later, the reality is even grimmer than imagined. The COVID-19 pandemic has effectively laid the world out on its back and has kept consistent pressure on sensitive areas with the potential to destroy the health, economic and social fabric of nations, especially countries with small economies.
Over the course of the pandemic, our Principal wrote a number of articles looking at different aspects of this impact, with a greater focus on the economics of it. The Bahamas has recently selected a new administration to run the affairs of government. Captured in those articles were recommendations and cautions. Here we seek to highlight aspects, which we believe remain relevant, or provide useful context and those which may demonstrate the accuracy of the thinking behind the formulation of the points made.
The portions in white/italics are those taken from the various articles. In instances, limited editing was done to give proper focus and context. For example, some of the articles had a regional focus or contrasted two countries, mainly The Bahamas and Jamaica. The changes made seek to pinpoint issues of The Bahamas and its context. Where editing would do too much harm to the point, the original formulation is maintained. Generally, each heading represents the focus of an article but styled differently to create an appropriate flow here.
This document is a summarization with an eye on continue relevance. There are many matters explored and captured in the articles most of which are available at www.nlsolutionsbahamas.com. This document is not intended to be comprehensive but rather focused and indicative. We believe the highlights reveal a number of useful themes, outline some bold arguments and detail attempts to offer solutions for contemplation as we moved forward in the solving the ills of The Bahamas’ economy. The fate of the economic fate country is highly uncertain. To us however, this state, represents the emergence of significant opportunities for focus, reforms, growth and development. In the final analysis, while there are many important matters to be address, regardless of how they are categorised, and the perspective from which they may be considered, only one approach will top as being capable for securing long-term sustainable solutions and that is growth!
IN THE BEGINNING
The first contribution I made was to draw attention to the event from a risk management perspective. Then I indicated “…when these matters start to make a "bee line" to the base of the global economy and striking almost clinical blows at the foundation of global commerce, strategies and investments it's time to see them in the light of financial risk as opposed to the classic knock on effect. These events are akin to a charging wild beast going for the jugular of a prey. The effect can be fast, violent and brutal. As we watch China grapple with this health incident, and other areas of the world, it is becoming clear that collectively the world may not be prepared for this. However, look at how it may affect vulnerable economies. One infected crew or passenger on a cruise ship will disrupt a normal port call removing anticipated revenue, impacting local business and reducing government revenue. Imagine therefore a broader scale of infection affecting that entire industry. Countries like the Bahamas and those in the region could be addled.” The statement is largely common sense but it sets the tone for what was to come and at the time was a clear warning that the views of a passing occurrence were not appropriate and great seriousness was an imperative. The implications from then were very clear. Exactly this happened to the tourism industry, it came to a groaning halt. My first admonition, looking at it from a risk perspective, stated, “The spillover risk is real, the question is how prepared are we to manage it? The vulnerabilities are known, how will we hold up? China's success is ours. The USA's success will be ours. The way the rest of the world manages this incident is important for us. Should they or any one fail, well the failure will be ours too. We look to our leaders of industries and countries to appreciate the risk and bring effective management to bear for the betterment of us all. We look to a deep understanding of managing risk at a country, regional level to help protect the continued wellbeing of a people … our lives depend on it.”
This was after contemplation of what was possible and at the time informed by the general tone of the American leadership. The pronouncements and nonchalant attitude provided clues into what was possible. Unfortunately, it became all too real. The USA failed spectacularly and The Bahamas suffered and continue to suffer as a result. I captured this observation this way, “China has undoubtedly demonstrated serious and committed leadership in moving to contain the spread of the virus. Its approach unfortunately contrasts with the shaky start demonstrated by the United States, a country which poses great risk to many in the Caribbean region, and ever increasing risk should it get its response terribly wrong. With three hundred million potential cases sitting on the doorsteps of the region, as we noted before, their success is our success and their failures could be our long-term catastrophe.”
“Despite the alacrity displayed, the one thing we must appreciate is that with displacement of workers, shuttering of factories, slowdown in cash flows, undoubted backlog of orders, restarting and repairing the disruption to supply chains will not be quick or easy. It therefore means that China will continue, at least over the near term, to contribute significantly to the supply side shock of this health event turn economic. As noted, this will continue to have a debilitating impact on world trade and economies.”
“Countries such as The Bahamas therefore, which is still coming to grips with the impact of Hurricane Dorian, are faced with the daunting fact that it is likely to see its tourism economy drastically curtailed immediately as a result of COVID-19. The sad but unfortunate truth is that the hospitality and travel industry, while taking the biggest hit upfront, is likely to see a long tail drag as both the airline and cruise ship industry grapple with the challenges of righting their path over the next few months. The Bahamas … [some ways] from the budget presentation and concerned with the after effects of Dorian will now need to look seriously at what treatments, fiscal or otherwise, it will apply should this event have a prolonged impact.” We are all at this point acutely aware of the impact as foreshadowed here. The Bahamas, Jamaica and the rest of the region has taken a significant beating. The region continues to struggle in the face of an ever-evolving event, especially with the emergence of COVID-19 variants, vaccine hesitancy and in instances important leadership missteps under the duress of narrow economic options and high dependency on tourism.
The foregoing assessment, looking at the vulnerabilities being exposed by the crisis, led to my call for a certain approach to leadership, not limited to political or national. Appreciating the gravity of the issues, I pointed out then, “Leadership will be critical over this period. The moment calls for calm, serious, deliberative and consultative leadership. Both political and private sector leadership will be important determining factors. This, after all, is another financial crisis and it will come with opportunities to pave a path for a better future, but only if there is bold and smart leadership. Will [the] current leadership seize the moment to tap into our collective genius, inspiring us to advance together or will we tinker with the chance of showing to the world what is possible when national leadership effectively harnesses the common national consciousness?”
“For The Bahamas, COVID -19 is placing a bright light on the need for at least one other well-developed sector. The traditional two-pronged economy is not sustainable. While the current arrangement has served the country reasonably well, the need for reducing reliance on single sectors and finding ways of positively affecting the economic welfare of a growing citizenry is urgent. We do not propose to have the answers but we are convinced that a deliberate effort is needed in restructuring the economy, causing it to be at least a more balanced “three-legged stool”.”
“How will this be achieved? A maintenance of the status quo will certainly not achieve any marked changes. Wherever the answers are they must be found and open minded leadership will play a significant role in this. Leadership must challenge our thinking and impress upon our minds the need for and commitment to become more innovative, more productive and therefore more resilient in the face of cataclysmic disruption like COVID-19 and its attendant impact.”
Leadership is fundamental to the economic fortunes of any country. As we observe the world’s response to COVID-19, we are undoubtedly appreciating the criticality of effective leadership and lauding all instances where it is observed. On the other hand, we cringe at the pronouncements and actions of those who are otherwise. This moment demands the former, and as a region, we must proactively fight against the latter. In the face of this economic crisis, are we prepared to take the bull by the horn, act decisively, move intentionally and fix the issues that are in our control but with a firm eye on the longer-term future? We must! It is no longer sufficient to sound the refrain of vulnerability, it is no longer appropriate to question the quality of leadership; it’s not enough to acknowledge our lack of productivity or competitiveness. Now is the time to fix the things that ail us. Now is the time to take responsibility for the things in our realm of control. With our known weaknesses violently exposed again, now is the time to start down the path of making our circumstances that much better, such that when we are again faced with the likes of a COVID-19 or Dorian we are better funded to weather the storms that they throw at us!”
Leadership is the most critical factor that will cause The Bahamas to turn around from its current position. While I actively avoid getting into the political fray, on this score, it is reasonable to state that the country has decided that the then leadership did not deliver in the ways desired. Whether this is true, and the extent thereof, will become clearer over time. However, the new administration has a glorious opportunity to learn from the past and to focus on this important reality. The fortunes of the country turns on leadership and the current state demands a different approach to leadership than has been the case, across all administrations to date. There is no question that there were leadership missteps in certain areas; one of the biggest blunders being the 72 hours allowance for travel without testing. At this point, this is simply indicative of the focus needed and the consistent level of leadership effectiveness that this crisis, health and economics, demands. Anything less could be near fatal. Looking forward I believe that this point, made in one of my articles, remains instructive for leaders as we tackle this crisis. “Leadership is the only thing that can cause us to stand together against any challenges or to move together toward any opportunities, great or small. The kind of leadership that we all desire shows itself to be positively bold, courageous, focused, inspiring, empathetic, delivers results consistently, considers the welfare of the whole but takes into account the welfare and perspectives of the individual. We all crave leadership, which causes us to become significantly better than we currently are and that which will create transformational results."
LONG TERM THINKING
Challenging the efficacy of the early models, I stated in many instances that this event was likely an 18 to 24 months one. So far, this has proven to be the case. The early modelling was flawed in many regards but understandable so with a dynamic unfolding event. What may have been challenging for leadership then is the willingness to take a short term view of the situation too early locking in to the idea that the event would be as short as three months, at the time March to June 2020. My position then was to take a long-term view.
In a segment of one article under the heading, TAKE A LONG POSITION, I noted as follows, “There has been sufficient information to help policy makers refine the initial positions and projections discussed. A paper by Hugo Erken et al of RoboResearch Global Economics and Market delineates some issues that we consider should be informing the thinking of policy makers in The Bahamas at this point. The risk factors on which any scenario analysis is built must be widened by these assumptions. The world is in the midst of a real global financial crisis. Consideration must be given to potential bankruptcies or business failures, the reluctance of firms to use capital, and dramatic changes on the flow through of money within the economy. In the case of the latter, this is where focus on tourism has its greatest import. It is responsible for the lion share of foreign exchange into the economy of The Bahamas.”
“The shutdowns across the world could be prolonged but more importantly in our main trading partner. This could be many, many weeks. China is rumbling back to life but for many in the region, the USA is the intermediary in our supply chains and the main source of demand for the region’s tourism product and main export market. Therefore, while the initial point of supply in many supply chains may be ramping up, the most important point in that chain could be facing its own shutdown. Despite efforts to the contrary, the evidence on the ground suggests that the US has some ways to go before normalcy can be entertained.”
“There is a risk to financial stability. The crisis holds great implications for global financial stability and is under pressure. We anticipate that central banks across the globe will take the requite actions to secure this. Evidence of the large monetary policy response is exactly for this reason. However, we must focus on our local economies. With firms suffering, with household incomes under pressure from loss of employment the banking sector could see a spike in non-performing loans. Traditionally, small businesses in the region have had financing tied to personal mortgages or sources. This represents a big risk for these entities as the means of repayment are tied to their ability to trade. Lockdowns will affect cash flows and if prolonged will hurt these businesses. The impact on the banking system therefore must become an important factor in developing scenarios going forward.
With these in mind there must be a long-term outlook taken. The decision makers must now decide what fiscal, monetary and macroprudential treatment will best suit what the outcomes suggest and the extent to which they can be afforded. Here is where the position of fiscal reform will become important. Will the government be willing to borrow in order to finance stimulus? Do they actually have sufficient headroom to address, not the previously determined potential out-turn, but scenarios which could result in marked reduction in FDI; closures of businesses; spike in bad loans; lack of currently funded substantial projects to drive employment and further investments; precipitous fall in foreign exchange inflows and the implications for net internal reserves and balance of payments.
Debt- to-GDP looms large in the successful strategies being pursued by Jamaica. It also looms large as a measure of success for Bahamas' recently detailed fiscal strategy and this is generally the same across the region. We are reminded of the state, which Barbados found itself in not too long ago. To what extent are policy makers willing to buck the trend and do what may be required to inject growth through deficit spending? This moment calls for playing the long game. There are certainly near term issues to be addressed and which must be given careful attention if success is to be secured in the long term. However, long-term success and sustainability must not be sacrificed for short-term outcomes. If historical experience holds true for the event then this could be at least a three to five year cycle. Planning and response should be tailored accordingly.” We now know that the modelling did not hold but most importantly, that the attendant effect of the event has driven the country's fiscal status to a point of peril. Two consistent years of high record deficit precipitated by climate impact, loss of revenue and managing the crisis has left the country in a lurch. The way forward has become more perilous but presents in my mind significant opportunities to finally address many of the issues that have challenged the country over decades.
RATING AGENCIES AND NATIONAL DEBT
The Bahamas was recently downgraded by the rating agency Moody’s, with the report being released the day following the election. This caused a number of eyebrows to be raised and questions posed on the timing. While the timing is up for discussion, the fact that there was a downgrade should however not come as a surprise to those who carefully follow these matters. In 2020 as rating agencies foreshadowed downgrades I provided the following assessments.
“As it relates to sovereign debt, the continued COVID-19 event may be delivering to the world a ticking time bomb. Is there a storm brewing as it relates to emerging economies securing loans? There are a number of factors to be considered as we analyse the potential challenges which emerging economies face at this time. These provide important signals. This economic and financial crisis is different from past events in that every single country is experiencing the ravages and outside of a few will need to borrow. The demand, as mentioned before, increases the potential cost of securing debt. The market for borrowing is reduced given the fact that facilities which Caribbean countries would normally look to secure, borrowing on a bilateral basis, or through some predetermined agreements, have likely evaporated, as the countries that usually facilitate these are themselves grappling with the immense cost of securing funds for stimulus. Soft loans that may be available prior to now are likely all gone. The demand is high in a contracting market.”
“Ratings will continue in this environment to hold great sway on how the market will see a sovereign. Downgrades may be inevitable but the strategies for recovery could be the x-factor. Policy makers should not assume that the normal fiscal responses would be either effective or sufficient. This is a time where clear, cogent and practical national strategies can bring great value in blunting negative outlook. Understandably, most emerging economies are likely to be, at best, stable. Our assessment of sovereign ratings shows that this is definitely the case for the Caribbean. However, in those instances where the fundamentals are weak and the outlook is negative, effectively laid out plans can serve to blunt its effect and therefore place the country in a more favourable position for attracting borrowings at reasonable rates. The unfavourable economic circumstances are systemic, therefore any action, which reduces risk premium, is a win for a country” The Bahamas has just seen its risk premium shoot toward if not through the roof with this latest downgrade. With a national debt stock of near $11B, an unfunded budget to the tune of $1.6B, of which about half is for the purposes of rescheduling debt, the country is in a delicate position. Speed to action and bolder actions, within the context of long term thinking I believe could have had a positive effect on where we are today. Speed to act and bolder actions, within the context of long-term thinking is needed to get us to a better future state, only the urgency has been significantly increased.
“I am of the view that the COVID-19 crisis will present challenges well beyond whatever capacity for borrowing exists in any one country. Every country will need to get creative and strategic. This is a great time to rally the resources and geniuses of a nation. It is a strategic time to call on the country’s entrepreneurial class. It is a necessary and appropriate time to re-evaluate the extent to which government systems adequately facilitate the economic opportunities for citizens and residents, revamp policies, search for values in dormant or underused legislation, and make decisions, which hitherto now would be unpopular but have economic, social and financial value. Where this is not the case, it should be fixed. Where this is so, enhance it. I argue for this on the basis that a stronger and more robust economy may be the best antidotes for correcting the economic fallout, for creating insulation for the next crisis, but also to respond to important geo-economic and geo-political changes that we will see. There are impending changes we should anticipate due to the harsh lessons that are emerging from this current event.”
“COVID -19 has created a global economic crisis that will continue to challenge many emerging economies, including the island state economies of the Caribbean. Without question, there will be limitations of resources. Economic pressures leading to downgrades will also exert negative influence on the ability to secure capital inflows at reasonable rates. However, rational and practical economic plans could blunt the effects of downgrades painting a country’s future in a better light despite current negative circumstances.
Policy makers in The Bahamas, Jamaica and the rest of the Caribbean should act quickly. There is an opportunity to move as a region in seeking relief. Whatever approach is taken, one thing is clear, which must inform all future approaches and developments of industries, is that the region has significant vulnerabilities and lacks sufficient economic diversity. How policymakers decide to respond, the extent to which they move quickly, eschewing the business as usual approach, will be fundamental to post-event recovery and long-term success.” Without doubt, some of the opportunities noted here have changed but I believe not totally evaporated. Regardless, I believe that policy makers must draw on every single option available to right the ship of state and leadership should not be afraid to look to the region as a viable source of opportunities for securing solutions for the country.
A TAXING STATE OF AFFAIRS
The country has struggled with the idea of alternative forms of taxation for decades. The current tax regime is itself proving to be challenging and limited but to be fair, operates in the context of so many deficiencies that accurate qualitative assessment is not truly possible. To move forward though it is an area demanding careful consideration. Progressive versus regressive taxation is a discussion that holds potential value for the country. The portions shared here were written against the backdrop of EU actions, however, in a generalized manner they hold currency. I stated then. “I believe that the time is right to start having the national discussion, which confronts this head-on. Any potential changes would be so radical and culture shifting that early, clear and open discussion leading to a sound understanding and support for acceptance or rejection is definitely needed. Again, the scope of the long-term rejection of corporation tax, a form of income tax, is very limited and could quickly become non-existent should the EU follow through on its “threats”. We understand and appreciate the unease and hesitancy involved. However, given the timeline proposed by the EU I would recommend the following:
● Initiate a clear and focused conversation, especially within the financial services industry, on what the issues are and the options facing the country. The reality is that just as the EU may apply pressure should the business model and strategic objectives start to feel adverse friction, the sector too will become a source of immense pressure for the policy makers. The possibility of ultimately a retrenchment in business and economic activity in this arena should not be ignored. In the first instance discussions focused on bringing clarity and more importantly greater certainty to the sector is a strategic imperative for the country. Outside that narrow sector, selling the idea of any form of tax directly affecting income will be an uphill climb and therefore the conversations with and messaging to the citizenry will require careful attention.
● Create a full study of the tax system with a clear focus on alternatives and the need to address inequities. Accepting that there will be no levying of income or corporation tax prior to the election, constitutionally due latest May 2022, it would be reasonable for all political parties to share the burden by having an across the board bi-partisan buy-in for such a study. This approach capitalizes on time and seeks to hedge against any drastic action that may be taken by the EU toward the end of 2021 or early 2022. A “national” commitment to a study itself will hold important messaging for external parties. Ultimately, the main object is to be strategic so as not to be caught flat footed at a point of great urgency.
● Make taxation systems, tax revenue and space a critical and intricate part of the economic recovery discussion. Conversations to date adopt a rather abstract and disjointed approach. As an example, the ability of the government to meet its interest payments on debt is directly influenced, at some level, by what taxes are collected. Depending on the economic climate, growth or decline, the sufficiency of said taxes comes under pressure. Therefore, as we look to secure a more resilient economy, the country must come to grips with the need for greater funding, at least from time to time. COVID-19 has shown the dramatic cost increase that is possible to shore up the social sector, as an example. Refuse therefore to divorce, in a real way, linking all elements while making the issue of equity and sufficiency more than rhetoric.
● There are potential risks to the certainty of government revenue, having regard for the potential impact of tax planning, in an income tax system, especially corporation tax. The ability to use group losses as tax credit for example could result in volatility in collected revenue. The country must therefore actively start looking for potential gains from any changes, voluntary or forced. Benefiting in a fundamental way from double taxation treaties, opportunity to expand in the headquartering segment of the financial services sector, as an example, assess opportunities to gain strategic advantage over regional competitors with “settled” income tax systems. If there is ever such a change, the best approach is to squeeze our every possible advantage, which positions the country to earn more.
● Fundamentally rethink tax administration, understanding that it gets much more complex with income taxes. The general regressive nature of the current tax system has the advantage of checking itself. You cannot clear a piece of heavy-duty equipment, for example, unless VAT is paid as part of the custom process. How that equipment is treated for tax purposes though could have a fundamental bearing on how much tax is ultimately paid to the government. The tax administration infrastructure and enforcement will need to be ready to address new and unfamiliar complexities.”
“… I hold the view that eventually the matter of income tax will not just be left on the table for discussion but it will be front center as “the discussion” to be had. The country is ailing from the effects of the global financial crisis. The main task is to strategize a path to recovery and resiliency. I make the argument that given important shifts in the economy and potential lingering effects from this crisis, an unfortunate build-up of debt, and the performance of government revenue, the time may be approaching when a shift to a more progressive taxation system will serve the country better, but not without its fair share of challenges. It is an important matter. A matter demanding the attention of every business and organization, citizen and resident. It is a matter of sufficient national strategic importance that it argues for the suspension of the usual adversarial debates and beckons a sober, practical and collective discourse, for the benefit of the country.
THE ROAD TO RESILIENCY
In one article I took a careful look at the idea of the development of a more resilient economy and explored some of the challenges faced. As was the case then debt loomed large and will continue to do so for many months to come. The points here generally remain useful for contemplation. I stated then, “Based on my analysis to this point it is fair to conclude that The Bahamas suffers from low growth and now, based on 2020/21 results, high debt burden. The debt to GDP is projected at 82% [now likely over 100%] with the possibility of being higher. This currently rests on whether the modelling, which flowed into the budget, accurately captures the loss in GDP. In the end will it be 10%, 20% or 30% loss? The time to normalize will influence this significantly. On balance, it is fair to highlight that The Bahamas fares much better than most of the Caribbean. It has some important structural weaknesses such as overreliance on tourism and financial services with limited space for counter cyclical fiscal policy. The economy was not very resilient. Going back to normalcy will not make it resilient.”
“High debt and low growth terminates into limited fiscal space and limited policy options. The country has done relatively well in its response to the financial crisis to date but the decisions all require important trade-offs. Consider again the views of the [Caribbean Development and Cooperation Committee] CDCC in concluding the statement noted above, “To tackle the debt problem, the most indebted countries will need to embark on a bold fiscal consolidation and growth programme.” It then goes on to effectively rationalize the reason for embarking on this dual approach. It stated, “The aim of this programme is to bring down government debt to a sustainable level over the medium to longer-term. This should entail realistic targets for primary savings that do not choke off the weak recovery in these states.”
“The program of debt management must therefore not impede opportunities for growth. The importance of fiscal consolidation is fundamental and reduction in debt burden is critical, however, if it hurts the potential for expanding industries, enhancing facilitative systems, or advancing infrastructure development then it is not effective no matter the reduction. The CDCC wrapped its conclusion with this, “The programme should be built on targeted cuts in current spending, while preserving development-oriented capital expenditure and social protection for the poor…also, and governments should strive to reduce administrative and other hurdles to doing business. Governments should also seek to strengthen fiscal management that would encourage public savings when revenues are growing, and expand expenditure when growth is in decline”. This latter point is fundamental. This is a very practical way of seeing resilience. The concept of saving for the proverbial “rainy day”. When the shocks emerge, as they will, the country is in a better position to fund its response having secured the ability to save during periods of growth and obviously spend more when needed. Resilience is the ability to bounce back. Without a war chest, the ability to do so is always going to be limited. Ultimately, the government will either increase taxes or reduce the level of service it affords to the citizenry. There is no easy initial path to achieving this desired goal, what is clear is that failure to embark on this path will ultimately be more costly.”
In the final analysis, the economy of The Bahamas needs serious fixing. There is no value in tiptoeing around this fact going forward. The future calls for full press actions that are focused, strategic and value creating. Reproducing large portions of the closing of the article on building resiliency makes sense here. I noted, “As the country looks to emerge from this current crisis, a task which will not be easy, there are some important actions that one would anticipate. The policymakers will accept that there is urgency needed in addressing structural reforms and set out to do so. The steps will evidence a radical look at the entire economic arrangement and demonstrate a willingness to address all that either limit the economy or have the potential for expanding it. It should be anticipated that steps will be taken to look at expanding the tax base. Are there opportunities within the offshore sector? Can elements, which have up to now remained outside the tax net, be captured? This should naturally nudge discussion towards the need for tax reform. Whether the time is optimal is certainly up for discussion but the fact that there are wider economic implications resting on this issue makes it a major candidate for the decision table. What would a new taxation regime do to the fiscal space of the country? How might it affect the value proposition and viability of the international financial sector? Are there potential for expansionary stimulus from tweaks to the tax regime? Given the timeline for reporting, there clearly will not be sufficient time to delve fully into the taxation matter, however, a foreshadowing, or explicit exclusion, would be useful in understanding the fullness of the strategic potency of whatever the final recommendations are.”
“A rethink of the way concessions are used. The current environment may not naturally point to this and timing will of course be critical. However, it is important that a serious reimagining occurs as it relates to concessions, having regard for its impact on future tax revenues and the growth and development of the country. Concessions in my opinion should have the effect of expanding the economy well beyond the confines of the immediate business to which it is related. Investments, which make fundamental contributions to the broad economy, are important for the path to resilience. Concessions, therefore, which largely only deliver jobs need a rethink. In essence, future investments should be looked at through the prism of “beyond concessions for just jobs”; otherwise, they hold little value for long-term development. Investments must be strategically deepening the economic base, transforming more of the working class into entrepreneurs and diversifying exports. The idea here is that on a net basis concessions should not be robbing the country of tax revenue. We should be able to tie allowances, directly or indirectly, to the spawning of other tangible economic activities and investments. A strategically determined $2 billion concession, for example, in an eco-tourism arena, which then spawns a robust organic agro-market (local demand and local supply), is a game changer. The said agro-sector matures over time creating new entrepreneurs and eventually sufficient capacity to become an export earner. The concession given up in this case takes on the ability for exponential payback. While this is a contrived example and highly aspirational, the principle is clear.”
“It should be anticipated that efforts are made to deconstruct the deficit and use the component parts as drivers for actions going forward. The ever wide and widening balance of trade gap should not be seen as a doom and gloom situation, but rather a rich opportunity to explore growth. The idea is, if imports consistently outstrip exports by such a wide margin, where can we find sources to reduce the gap? The ever-growing interest payments and the narrowing capital budget both hold interesting feedback that have been brought out in this article. The intent in repeating here is to underline the importance of leaving no stone unturned and to convey the understanding that each point of pain represents a potential economic opportunity. Some people will take an extreme read of that statement to conclude, “We can’t close the gap”, but note that any narrowing is a gain. Policy makers will take a close look at the country’s interest growth differential and understand that greater effort must be exerted to find real economic growth. This measure, which takes the difference between interest rate on debt and real GDP growth and compared to prior years, underlines the need for a two-pronged approach to building a more resilient economy. As stated before, real GDP growth is very low. Consider the natural implications that hold for the cost of debt. We also have already seen how debt repayment takes away from economic expansion. Again, another of those almost circular chicken or egg situations. The answer though, in this circumstance is not an either-or proposition. As a country, the Bahamas must actively and robustly pursue both.”
“Certainly, in the push to create a more resilient economy, it is anticipated that efforts geared at improving labour productivity will be evidenced in the planning. Productivity in both the public and private sector is generally agreed to be low. How might this be changed? Through continued educational programs funded by the government, BVTI and UB for example. However, this should also be extended to the facilitation of retraining and upskilling the existing labour force. It was noted earlier that resilience is dependent on the strength of the private sector. How will it leverage this obligation, encouraged by the public sector, to lift the level of productivity and thereby improve competitiveness? I cannot be sure whether any of these would form priority items for deliberating and planning. However, from my vantage point, which may be highly disadvantaged, this would be an appropriate way of walking down the path to resilience. Obviously, each step may cause some things to become clearer and therefore greater confidence gained in what can be discarded or what may require further consideration. In the end though, our anticipation should be no less than a state of affairs that finally boldly, creatively and pragmatically addresses the challenges that have been perennial retardants to growth.”
“The possibility of economic recovery for the Bahamas stretching out to 2024, as stated by Moody’s, is not a comfortable proposition but one that should not be dismissed. The restoration of the Bahamian economy will not be easy but is very urgent. In fact, there are troubling signals in the wings that this could get harder yet due to the performance of our most important trading partner and the impact that it is having on its most important market, tourism. Regardless, the efforts to secure a more resilient economy must move ahead full speed. If nothing else, the current state of affairs is showing clearly, what the challenges are. It would be anticipated that this might aid the decision-making process. The Prime Minister has called for bold and generational shifting solutions. I agree that this is what it will take to recover from this health pandemic/economic crisis event. Policy makers must be ready to make the tough decisions and push the envelope to uncomfortable levels without harming the economy further and based on well considered solutions that will bear fruit in the future."
“The resilience desired must rest on a foundation of a strong and innovative commercial sector; strong and supportive public sector; and strong and efficient social sector. Each of these must be operating at or near optimal potential, undergirded by innovation and strategic investment in the growth of the economy. The sectors must be aligned and operating with significant effectiveness and efficiency and in evidence must be a public sector, which is responsive, nimble enough, well-structured and certain, disciplined and proactively facilitating. To solve the problems faced by The Bahamas, sound treatments have to be brought to bear on growing debt, low growth, the concentration of export earnings and addition of new revenue sources, low productivity, and public sector reforms. The country needs a more resilient economy, a broader fiscal space and a deeper economic breadth.
“Debt management and fiscal consolidation are critical parts of the process, however, without growth the desire for a more robust, resilient economy with the ability to better absorb the effects of external shocks cannot be effectively achieved. Policy makers’ tasks therefore take on a twofold nature. Reduce debt burden while growing the economy. There is no other way to achieve a balanced expansion, a deepening of resilience and ultimately the ability to meet growing demands while securing incremental improvements is the standard of the national living. The work before them is therefore infinitely important. It is against this backdrop that we must anticipate a robust and comprehensive output from the planning process and a fundamental shift in the outlook that vibrant development can be achieved within the confines of strained economic realities.”
Economic resiliency is the answer for The Bahamas. It is the only path through which a sustainable future can be achieved. That calls for growth and careful management of all the challenges of the country and economy. Failing to secure it in the long term but more importantly to immediately start moving in this direction will spell trouble for the country. The opportunities are great and the moment is right, with all the recent developments for bold attempts in this direction.
It is easily agreeable that The Bahamas must embark on a robust treatment of rebuilding the economy. The rebuild is not from scratch but the issues are fundamental enough such that it but be seen as a demand for holistic attention across all aspects of the country and economy. It is against this prevailing backdrop that I wrote back then.
“Approaching this very important matter of rebuilding, reviving or recovering the economy of the country, we proposed here a suite of questions that must be distilled around the strategic tables. These questions should be raised, asked repeatedly, debated, argued, and the pros and cons confronted. The environment in which these are done should be charged with an openness for disagreements, without any overt need to be correct. The focus is to find the best answers, those answers, which advances the state of affairs. No time should be spared in cowardice or accommodative discussions, the stakes are too high for this. Every attempt should be made to be brutally honest and open to ideas and suggestions. In our opinion, every effort should be filtered through the funnel of “what is in the best interest of the Bahamas for now and the long term”.
● What do we want The Bahamas economy to look like after COVID 19? What will tourism look like? What will the financial services look like? What do we want to see in agriculture in the next five years? What sectors are ripe for policy support? What legislations and policies we have languishing which if repurposed, can add value? How does governance impede economic growth? Is there value in devolution and local government?
● Which sector of the economy is causing a drag on others? What are the unexplored pockets of value we have ignored because of entrenched thinking? How can we add greater diversity to the economy? How can we diversify tourism? How might these impact tourism and other sectors? What values are locked-up in “Historical Bahamas”? Are there social assets such as diversity of culture that we can take advantage of?
● How do you diversify without broader skill sets? Does immigration hold any value in diversification? How do we influence greater trade? How do we restate a policy of Bahamianization for the 22nd century based on fairness and empowerment, economic inclusion and social equity?
● What exactly should the tax regime of the Bahamas look like? What tax regime would provide the greatest future value for the country? How can our fiscal policies (tax/concessions) be exploited differentially to drive economies in family islands?
● What is the role of UB in creating a centre of excellence? How would a financial services sector thrive in an environment with a recognized school of banking? How do we create a more vibrant capital market? How do we create a more vibrant funding machinery for businesses?
● What are the opportunities in CARICOM? How can we leverage the Caribbean to improve the domestic economy? How can the region be used as a first step to greater food security? What opportunities are there for inter region trade that benefits the Bahamas Maritime industry?
● What is our targeted GDP in 10 or 15 years - $20B, $25B? How do we get there? What industries are primed to help us do that? Are we too focused on GDP? What about GNP? What policies do we have which causes our GNP to not be significant? Will changing any of these policies imperil the country? What reforms are needed to unlock economic value? How do we achieve them? By when can we reach our GDP target?”
These questions I believe provide a good basis for thinking through the issues. At this stage the now ruling party would have presented its manifesto, “Blueprint for Change”, covering many of the areas. The questions I believe still stand as benchmarks for assessing it especially given that, in my view, a number of the plans will be subjected to adjustments and others will have to be deprioritized largely because of lack of funding.
“COVID -19 has created significant problems for the country. The economy faces an uphill climb to get back to some semblance of normalcy. The road back will be hard but this event presents us with great opportunities to take a focused look at how we can adjust for the future. This is an interesting and exciting time. It calls for bold decisions, bold leadership and bold decisions. We have seen many offerings of ideas and suggestions. We are convinced that the collective genus of the country, including its diaspora, is more than capable of creating the rebuild and revival of the economy. However, as we have shown here by undertaking an analysis of the NDP, once the issues are identified there must be follow through; implementation is imperative.”
The following was noted in anticipation of the budget. The reader can judge the extent to which the call made sense and how much was actually delivered in the budget exercise. “Against this backdrop, we anticipate that the budget communication slated for May 27, 2020 will be rich with very potent policy positions. Given the ongoing work of the ERC, these may necessarily have to be stated in a high-level fashion, in the first instance. This though represents the first concrete opportunity the government will have to communicate the vision and strategies for the way forward. The role of every ministry must take on greater prominence toward the rebuilding and drive for economic growth. A holistic approach with all hands on deck. We anticipate storylines to emerge showing The Bahamas pivoting to become an entrepreneurial paradise; efficient government; highly facilitative environment; all setting up the private sector to take the lead role! With the deficit expected to be high we anticipate PPPs will get more prominence, greater liberalization around the Abaco and Grand Bahamas rebuilding and financial services to become the squeaky wheel due to the EU threat and the implication that that holds for the existing tax regime. Our next piece will delve into these matters”.
BEYOND THE LIMITATIONS
Finally, I close this effort with excerpts from the last article done and published just before the general elections. It called for the country to face the brutal facts of its circumstances and to do the things necessary, for all citizens, to change its fortunes. “In order for there to be growth in anything, it is necessary for there to be a surmounting of whatever limitation may persist, real or perceived. It is not difficult to speak of great performance, articulate world class standards or consistently reiterate the expansive and unique endowments of the country. It is however a very different matter in demonstrating true alignment, vision, espousals and actions towards the realization and maximization of these things. There are some clear limitations with which the country must contend and overcoming these will rest squarely in the wheelhouse of leadership, not the leaders but the kind of collective self-leadership guided by a carefully crafted vision and curated mind set generally observed in thriving economies and countries. Permit me to share a few thoughts with you on why I think we have not always consistently found ready solutions to our social, economic and other national problems that limit us. These are matters that I believe must be addressed and which will demand committed and dedicated leadership to achieve.”
Firstly, there is a lack of consensus around a common national vision, there are simply too many people who hold that we cannot do better and that the genius of the country is concentrated in specific groupings, and this reality is indeed very debilitating. Consequently, the brightest minds are not consistently leveraged. This is extremely limiting given the size of the country. There is no way the country will solve its major problems with only a portion of its capacity committedly engaged at any point in finding the solutions. In fact, there is circumstantial evidence that suggests that the lack of tension in idea generation may be a significant contributor to this state of affairs. The strongest oak trees are said to be those that faced the greatest winds. The process of charting a transformational course demands being exposed to and becoming comfortable with ideas being challenged rigorously. Intelligent and committed minds in open, honest but productively brutal engagement is the best means of achieving this. The idea of growth and innovation does not seem to be well understood as being an intentional process as opposed to the often observed approach of near capitulation in the face of the last viable option largely because earlier possibilities were left to wither on the vines and lost to time. The economic system we have, as currently structured and unchanged for decades, is limited in what it can deliver and is likely close to the top of its potential, left unchecked.
The idea of diversification has for too long become near taboo and is often misunderstood by many. The too normal impulse to react with “and move to what?” is a telling reality which needs urgent rehabilitation. There needs to be a national mindshift on this matter. There are many who understand it and recognize its potential ability to be disruptive, and given their level of comfort with what currently exists actively resists any such discussions. Here lies a case of good being an active enemy of great. There is a level of being satisfied with what prevails while failing to see that the state of affairs lacks sustainability. To understand this clearly, if we eliminate the deficits for the last two years, treating them as outliers, change nothing in the current economic arrangement, in ten years, based on the average deficit, the national debt would increase by $5B! There is no way with increased population growth, greater demands for services and new infrastructure, and the need to replace old and crumbling infrastructure can this be seen as an advantageous position. Unless we eliminate these artificial limitations, brought about largely because of how we think about growth opportunities, the country will suffer in the long term. Failing to look down the road and accept the realities, as they exist, the people of The Bahamas believe that the country is better off than the economic state, properly assessed, will show and therefore are more comfortable than should be. This creates a lack of the urgency needed to fight for the changes that are necessary to secure the social and economic future of the country. Some may challenge this position and I readily understand and appreciate that, after all the points here are but considered opinions".
“For us to get beyond the limitations they must first be known and accepted. The one thing that the country must do is to squarely face reality. Courage is displaying bravery and boldness while still being scared; it is not an absence of fear. We must in this moment act with great courage or pay the price for any measure of timidity. This moment forward can either be a defining one, the result of our efforts and actions or one which defines us in ways which harm.”
“The country has an economic structure with a weak facilitative environment where production is difficult to scale up and therefore the potential for surplus production and foreign exchange earnings is limited. While some important work has started in this regard much more needs to be done. There must be a push to secure a more effective and efficient government machinery that supports and complements the work of the private sector at levels and which drives national productivity to unprecedented levels. The current tax regime is feeling pressure from both internal and external forces and there are significant unacknowledged aspects of taxation, which the country has not openly discussed, and up to now seemingly reluctant to do so. Unless there are bigger internal markets or deliberate production for external markets, which necessitate larger internal work force the ability to grow other industries such as agriculture will always remain limited.”
“So are we ready for the next ten years? My questions here are by no means suggesting that the country is incapable of securing the growth it needs by making the changes necessary. In fact, I strongly believe that great things are possible. I believe that The Bahamas remains poised for growth because of its untapped resources and capacity. I believe that with the right focus and with a true national thrust built on consensus and guided by a national vision, articulated broadly in a national development plan, the country has the ability to really flex its muscles in the region, in the Americas and gain greater status on the global stage. However, I also believe that without confronting the things that currently have limited that from happening up to now, none of this will happen, at least not to the extent that would be ideal. “
While there are many other elements captured in those articles, these are the main ones I wish to highlight. I believe the highlights reveal a number of useful themes, outline some bold arguments and detail attempts to offer solutions. The fate of the country hangs in the balance. Many are reluctant to admit that but this is an approach leadership cannot afford to take. There is only one way of solving the issues and that is to confront the brutal facts head on, always being cognizant that there will be surprises behind unexpected doors and being ready to face those also. “We look forward to seeing the output of the efforts and hope for all persons, citizens and residents alike, engaging their minds towards finding viable solutions and ready to work for successful execution. Policy makers and leaders from all sectors of national life are faced with responding to a defining moment. Effective leadership, diligence, urgency and discipline will be necessary elements that must be actively at play. We anticipate success. The welfare of the country demands it!” In the final analysis there are many important matters to be address, which will change the fate of The Bahamas. Regardless of how they are categorised, and the perspective from which they may be considered, only one will top the list of any accurate analysis and that is growth!
Practical Solutions. Delivered.
© Hubert Edwards 2021
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.