The economic recovery process for The Bahamas must be urgent, broad based, strategic and focused on multiple plains at the same time. Every effort must take on a holistic approach, designed to secure fundamental and sustainable fixes for the perennial issues that have plague the country for decades and create economic growth, not just for the initial recovery. Anything that is otherwise will be detrimental to the long-term wellbeing of the nation. In this piece, I look at some select areas of the recent Speech from the Throne.
The speech brought to life the pronouncements of the PLP’s manifesto, transforming the essential points into the policies and plans upon which the administration will legislate. Effectively therefore, the Blue Print for Change has now transformed into the fiscal, social, economic, health and other policy positions by which the country will be directed over the next five years, at least. Drawing from the speech itself, objectively one should reasonably anticipate that these policies will further transmute into generational shifting strategies. These strategies, when implemented will be evidenced by effectively executed projects, programs, initiatives and reforms aimed at remedying the “country in the midst of a mismanaged health and economic crisis”. This is in response to the clear evidence that “Bahamians demand transformational change” and with a clear understanding that “we cannot resolve our country’s economic crisis until we have resolved the health crisis”. A useful to reconciliation would be the administration plans versus what the citizenry considers transformational.
This for me is the essential foundation of the speech. It clearly delineates where the administration believes to be the state of the current crises and the management thereof to this point; mismanaged, it creates a clear demarcation of what success represents in the minds of Bahamians, transformational changes, and delineates the path to economic recovery and resolution of the health crisis. No one should therefore be unclear as to what the thinking is. This path, though clearly stated, must obviously confront the pressures brought on by the existing narrow revenue space, pressures from heightened expenditure demand, the friction of a high and increasing deficit, the uncertainly caused by a historical level of debt with a fundamentally shifting profile and the urgent, but currently non-existent need for counter-cyclical buffers. Regardless of the decisions, they must contend with the combination of these factors that lie in the path to the resilience that the country desires.
It is through this lens that accurate and objective assessments of government policy must be done. As an example, the plan to reduce VAT by two percentage points will affect revenue, impact the deficit and while beneficial to individuals and business it will ultimately hold influence over the decision to borrow and the continued view of the country’s debt status. The administration in the Speech from The Throne indicates its full commitment to this. While there is expected benefits from the spinoff of increased buying power, positive impact on the velocity of money, potential buoyancy in the economy, and the tenure being only for one year, it remains a very delicate decision. I do not argue against the implementation; after all, there is no question that the citizenry can use the relief. The need for the measure as stated in the speech is “to fix a trail of unprecedented misery and bring immediate relief to businesses and persons”. However, like other plans, which are yet to be fleshed out, there will be tradeoffs and the effect on the overall state of the country’s finances cannot be ignored. One of the most humbling question the administration will be faced with is how do we solve for the short term, inclusive of delivering campaign promises, without imperiling long-term wellbeing. As I have written before there is no painless resolution to the state that the country finds itself in. Clearly, an important decision will be how to lessen that pain, but even more fundamental is, “do we take the hurt now and solve the problems, or defer it with the risk of greater and more debilitating pain later?”
The first set of priorities stated in the speech focused on health care. This includes the management if future emergencies without the need for Emergency Orders and what will be significant investments in infrastructure. This is one area where creativity must come to bear. The stated use of PPP is certainly the right way to go. However, given the depth of the health sector needs, likely much more significant than highlighted so far, funding and the attendant implications will be far-reaching. One of the very first utterances of the Minister of Health is that there was a need for funding. The question that comes to mind is whether this is funding beyond that which has already been allocated. A careful analysis will show that the current budget is not aligned with the plans of the new administration. In fact, it would not be a stretch to say that there is significant incongruence. Ultimately, many of the plans of the current directorate will turn on this and as a result, it is highly likely that in early 2022 we could see a supplemental budget.
While one can make an argument that taking into account the totality of the crisis, the speech could have been more clinical when addressing the resolution of the economic crisis, overall the directional thinking, in my opinion is good. The efficacy thereof will be evidenced when the details are presented.
RESCUE, RESTORE, STRENGTHEN
One point proffered is on the focus that will be brought to bear to “rescue, restore and strengthen the economy”. The rescue will naturally focus on regaining the $2B in GDP lost over the last two years and consequently there must be pinpoint strategies directed at the tourism industry that go well beyond the normal return of numbers to pre-Covid levels. Stated plans to seek diversification within this sector should go into full effect early to create momentum and time for maturation.
The coupling of Tourism and Investment portfolios by the current administration holds great strategic value here. One strategy that I believe must be employed is implementing programs and initiatives that will domicile a larger share of the tourist dollar. It is often loosely said that eighty cents of each tourist dollar goes back out of the country. Setting a target of increasing the retention is a viable strategy that could work wonders, in my view. Without any additional growth, success in this direction could pay great dividend by boosting allied sectors and buoying the efforts of domestic investors with the spillover effect of bolstering the public coffers. This rescue must also necessarily direct attention to Abaco and Grand Bahama. While we hope and pray for the return of tourism, we must not forget the productive capacity that was laid waste by hurricane Dorian in these two islands. Failing to recapture, reengage, and enhance this capacity will render the walk to true recovery suboptimal with resiliency maintaining its elusiveness.
Restoring argues for normalcy, what was. An important step on the path to the future; it is necessary but not sufficient. Our performance pre-Covid already had the country on a troublesome path to an uncertain future. Restoration therefore must be growth centric; it demands marked increases in employment especially in the youth category. Restoration will require a sustainable increase in government revenue. This can be the result of growth but if growth remains elusive then government may be forced to consider increased taxes. The restoration will necessarily see heavy focus on social sector. The last eighteen months have demonstrated the importance of having a secured safety net. It has also provided clear insights into the vulnerabilities and weaknesses present in the current regime, which must be fixed.
Strengthening the economy too will demand growth centric moves and strategies. Given the critical mass of debt, perennial deficit spending, recent historical deficits and a downgrade, the only truly sustainable path involves growth. Growth however will not come easily especially in the current global economic environment. Early addressing of the facilitative infrastructure is therefore crucial. Deep reforms within the public sector addressing issues highlighted in the 2018 IDB report - Building State Capacity in the Caribbean: The State of the Civil Service in The Bahamas – where the civil service scored worryingly low ratings in areas such as functional capacity and management capabilities. As uncomfortable as it will be reforms in the area of taxation is inevitable and delays in doing so is simply “postponing the inevitable”.
To strengthen the economy, settled position on taxation affecting the financial sector is needed in addition to addressing the sufficiency of government revenue. Committing to addressing the significant infrastructural needs of the country, page two of the speech states that the government “will pursue measures to stabilize public finances and increase public revenue”. what will be the sources of the increase revenue? Will new revenue be derived from new industries, integration or growth of existing ones? Will it come from taxes or as a result of investments (foreign and local)? As stated above is there the possibility of leveraging existing sectors to create greater expansion especially in domestic commerce leading to increased public revenue? Having regard for the latter question I believe that it was unfortunate that a broader position wasn’t taken in the speech as it relates to agriculture. The statement of “achieving greater food security and reducing reliance in imports as a matter or priority” is a nod in the right direction but I believe requires a broader strategic signaling. In my opinion, agriculture is the single greatest opportunity the country has for diversification, foreign exchange earnings and for gleaning greater domestic benefits from the tourism sector.
The speech highlighted other commitment for reforms, all necessary for the strengthening desired – in the areas of accountability and transparency, fiscal responsibility, public financial management and procurement. It is my view that there are ripe opportunities for governance reforms or adjustments in practice as it relates to the operation and interaction of the legislative and executive. If the reforms stated above is to have the truest impact possible, efforts to maintain the balance of power in the legislature must draw careful and precise attention, the system of parliamentary committees must work effectively, and the voice of the opposition must be given heightened importance.
As I made my way through the speech there are some points which I think naturally must be drawn together to have a proper appreciation of the potential impact of what is laid out. The first is the reduction of VAT. Against this backdrop, there must be consideration of the increase in minimum wage and questions as to what a livable wage represents. The increase in pension is an important aspect with both social and financial significance. Tax incentives and concessions for domestic investors, incentives under the Hotel Encouragement Act and for SMSEs under the SBDC. These are spread throughout the speech but are some of the most important declarations with revenue relevance. They demonstrate the extensiveness of the thinking and point to the complexity that balancing implementation will require. Except for the reduction in VAT that I think a causal argument can be successfully mounted against, I would not argue against these measures in any way. I would only state, without any risk of an overstatement, that it is critical that implementation result in greater facilitation and does not in any way create adverse pressures for the current levels of revenue government takes in or cause disruption to the private sector as it seeks to recover from the ravages of the twin crisis.
In the final analysis there is no greater challenge facing the country than the extent to which there is an effective “Debt Management Plan to address the historic debt burden and deficit”. In a real way, everything economic is a derivative of this and the effectiveness of plan, initiative, strategy or program impacts the veracity of this proposed debt management plan. Without belaboring the point, the reduction of VAT will increase the deficit and potentially the debt. The call for infrastructural works, regardless of PPP, will demand additional debt. Failing to secure economic growth and properly manage public finances will exert pressure on any plan put in place through the actions of rating agencies. The outcome of a remedial plan itself holds implication for the productive capacity of government earnings considering currently upward of 18% of expenditure goes to pay interest on debt. So what will the plan entail? Will we be in a position to pay the $3.7B in debt as they become due over the next few years? Will the strategy employed include proactive restructures designed to reduce cost, to make payments more manageable, to secure debt forgiveness where available, and implement a robust debt redemption program? When the debt management plan is considered how will the government approach deficit spending in order to restrict loan growth? Will there be austere measures to help curtail expenditure?
The issues faced by this administration as a result of the current state of the things are very complex and complicated to solve. In my experience The Bahamas has demonstrated a tendency where there is the desire to fix challenges without any appetite for the attendant investment of discomfort and pain. The current circumstances is so perilous and intricately intertwined that the simply act of resolution in one area will impose great adverse influence in others. Therefore, I anticipate a very clear and pointed discourse from the Prime Minister’s first address in the next sitting of the House of Assembly, primarily outlining where we are, where we are going, a refining of promises that may not align with realities. It is my sincere view that the bones of a robust legislative program has been laid, but one that will require lots of fleshing out. Undoubtedly, the main determinant of what strategies and plans will be employed, is the state of the country’s finances. More importantly however, the ultimate success of The Bahamas, and the current administration, will demand precise adherence to the third statement in the speech from the Throne – “committed to work in partnership… with our local communities and, most importantly, with the Bahamian people to address the challenges these crises pose”. To be effective this commitment must start with a full, open and honest “understanding” of exactly what the unvarnished challenges of the country are.
© Hubert Edwards 2021
Hubert Edwards is the Principal of Next Level Solutions Limited (NLS), a management consultancy firm. He can be reached at firstname.lastname@example.org. 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.