THE ESSENTIALS: THE SPEECH FROM THE THRONE




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