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  • Hubert Edwards

THE PATH TO ECONOMIC RESILIENCE – A CASE FOR GROWTH

BACKGROUND – THE SEARCH FOR RESILIENCE

Reporting on the same presentation by the Deputy Prime Minister (DPM) and Minister of Finance recently, one of the main daily newspapers headline read, “Govt. wants ERC to assist in finding solutions to supplement economic growth”, yet other, “Govt. pins hope on recovery committee”. This signals the level of seriousness with which the work of the Economic Recovery Committee (ERC) is viewed by the government. The DPM’s stated, “We anticipate this committee will bring back some recommendations that we’ll be able to execute in the medium to short term…so, non-traditional activity but in the longer term, to help us visualize and to conceptualize what the restructuring of this economy could look like is tourism takes longer than we anticipate to rebound”. There are important conclusions to be drawn from these pronouncements. Indications that this is needed where the budget may not have gone far enough are signs that the dynamics have shifted especially because of recent developments, driven mainly by the realities in the USA.


Around the middle of March 2020, it started to become clear that the Bahamas and the rest of the region would be facing significant economic problems arising out of the COVID-19 pandemic. By this time China, the first epicenter was coming to grips with the health crisis in Hunan Province and the United States was showing all the early signs of inadequate management of the crisis. The general refrain was that The Bahamas would lose ten percent of its GPD and the event would terminate around June. At the time of writing, we are four days from the end of June. I asked then, whether the early models would hold and the implications if they did not. I pointed out that the June horizon was but the best-case scenario and with a timeline of December, the potential loss would be closer to thirty percent, based on the IDB modelling. How much more will be lost? What would a back testing of those model show now, given their initial highly tourism centric assumptions? Is there sufficient economic resilience, which will enable the country to return to some level of normalcy?


With major hotel properties adjusting their time for reopening, some projecting September or beyond, this likely the case. I also wrote, stating the desire for China and the rest of the world, especially USA to be successful in combatting the pandemic. My exact sentiment was, their wins will be our wins and their losses will be our losses. Today we are looking at potentially our worst fears. The Bahamas market which provides 80% of our tourism market is showing ever-deepening signs of a crisis out of control. The USA’s desire to open up its economy early, the philosophical stance of its national leadership, the subversion of the role of medical and scientific contributors looms large and thankfully in stark contrast to what we see in the region. In an article piece I made the point that while there is an economic crisis to be managed, the success thereof rests in treating this with the respect deserving in managing a health crisis. The USA has become a case study of what could happen when policy makers fail to take decisive and common-sense actions. Thankfully, generally, we are not seeing this in the region. There is, however, significant economic pressure to open the economy. The question is, can we survive? How resilient are these islands of the region in dealing with a second surge or a real surge due to imported cases? What happens when health infrastructure meets economic challenges?


The picture is constantly becoming clearer as time passes. For those who follow and study the performance of the economies across the region the current picture was always inevitable. Downgrades by rating agencies, inevitable. Deep fiscal deficits, inevitable. Rapid increase in unemployment, inevitable. Huge economic counter cyclical expenditure, inevitable. With the onset and onslaught of the global Covid-19 pandemic, there is a deep and deepening financial crisis, in my opinion, deeper and more concerning than public pronouncements would suggest. The question which ought to occupy the minds of everyone now is how will we recover, what will governments of these countries do, and is the recovery cost affordable? The vulnerabilities from this event are obvious and well appreciated, or at least should be by now. Problem definition though remains critical to any attempt to recover. The truth is that these Caribbean economies are having the microscope placed on their economic arrangements. While this crisis has undoubtedly damaged them significantly, an objective conclusion must be that resilience was always questionable. In the wings lies the very ominous major climate event, an ever-present vulnerability. How resilient are our economies to these shocks? What other shocks will emerge as part of the global recovery process? What strategic treatments are needed to enhance that economic resilience? Are the projected deficits across the region reasonable? Are we going to limp forward hoping that what we had before will was return and we can once again enjoy some level of “normalcy”? Alternatively, will we take the path that will result in bold, exciting, innovative initiatives to strengthen our economies? A path that terminates in reimagined, reengineered economic arrangement and a new consciousness that radically eschews the paradigms of the past?


I believe in the capacity of the region to make the shift. The talent exists within and outside in the diaspora. However, if leadership fails to drive an appropriate vision of a new national economy, a new region with serious regional interaction geared at advancing the cause of the people of the region, we will suffer in the long term. Where there is failure to let go of arrangements which result in low growth economic output, the result of any plans, projects or programs will be the same. The Bahamas, Jamaica, the region suffers from being caught up in a serious debt trap; the region suffers from low productivity; and the region suffers from significant vulnerabilities and external shocks that are not faced by many others. The only solution lies in finding a sustainable path for growth, consistent growth. Strategies, which are inconsistent with that idea, will ultimately fail despite any positive impact they may have.


Faced with the overwhelming burden and urgency of ushering in a new day, every policy maker and every citizen and resident of these countries must know and accept that now, today, is the time to write a new normal of high productivity, economic vibrancy, and growth, by leveraging all national options available. The countries of the region will either rise by embracing new thinking (not limited to economics) or remain strangled by its existing paradigms. Economic resilience is about how an economy stand or recover from the effects of exogenous shocks. Finding the right and balanced formula to secure economic resilience is not easy but where the focus must be. In this process, appreciate that resilience assumes a return to a normative state and contemplate whether for us that state is optimal. Going back to a state which itself needed major improvements will not be sufficient to create sustainable resilience. For any regional economy, it will require effective debt management and consolidation; but as importantly, it demands a robust plan for economic growth. The Bahamas has underlined its response to the crisis with a budget styled “Resilient Bahamas: A plan for Restoration”. We will explore the issue of resilience to see how well positioned the country is to give true life to that slogan and look at what are some issues that will affect the realization thereof.


For The Bahamas, which has embarked over the year on a number of studies and strategic planning for the economy, this is a pivotal moment, maybe a tipping point. I think that it is important that a truly nationally endorsed plan emerge. I am of the view that the level and depth of this crisis demand an across-the-board effort where all major stakeholders agree on what need to be done. This is especially true in the case of major political parties. Time is at a premium and therefore directional certainty is critical. Early commitment to a consensus position has true economic implication. Commitment to executing the agreed plan has true economic value or at least carries serious influence. The bottom-line question is will we see once and for all a position which drives the national effort regardless of who make up the leadership? Alternatively, will there be a scenario where we could find ourselves once again at the table, planning on what new direction should be taken? In this moment the issues should be well understood; the most important of which, is that collaborative leadership will be a major determining factor in whether The Bahamas wins in the end.


DEFINING RESILIENCE

The Deputy Prime Minster signaling a potentially emergent change noted, “We may be shifting from the traditional big volume, big box tourism. We are seeing a move to a more specialty product; a more indigenous product which we anticipate will have even more benefits to Bahamians”. This is a very powerful statement of potential adaptation and transformation. Does this constitute a form of diversification? Would this secure greater economic value or how more resilient would the Bahamas be with such a shift. What exactly does resilience look like?


We can look at resilience in a number of ways. In a 2014 paper “Building Economic Resilience?” by Institute for Public Policy Research North, a dedicated think-tank for the North of England, we can see an exploration of working definitions. “The ability to adapt both to shocks and to long term changes”; “To resume form and function elastically following a disturbance”; “Bounce-back to pre-shock state or path”; and “Capacity to maintain core system performance through adaptability of structure and function”. However, one striking point noted by the paper is that all these definition “refers to or implies returning to some kind of ‘normal’ state, rather than adapting or transforming fundamentally in response to the change”. For the Bahamas (and the region), I think that this is the crux of the matter. Returning to some level or normalcy and stabilizing the economy is critical, however, without serious transformation, which is by no means arguing for an abandonment of the fortunes of tourism, the economy will maintain the same level of vulnerability to external shocks it had before the crisis. Long-term transformation of the economy is necessary.


The economy must adapt to what the new global norms and trends are dictating. For example the way tourism services is delivered going forward will be different from the past which may impact the level of earning enjoyed before. This will demand rethinking what we produce and the economic sectors in which we wish to have forays. The role of government in driving the strategic thrust for the reimagined state must be accepted with greater conviction. While this may be an uncomfortable position, the truth is, especially in a small island state with limited internal market and the ability for scaling up, government will consistently have to do a bit more that it would like in helping to drive the economy. Where the government is the dominant employer, and income-earning sectors highly concentrated it is not hard to see why this argument is important. However, until it does and creates the environment which better facilitates greater economic robustness, that will be a norm and a limiting one. In an economy where consistent growth is elusive, focus must be place on this.


The search for remedial strategies should ask and answer why on a running average for over a decade GDP growth has meandered below one percent. Broadly, what new plays can be introduced to the economic arrangement and what existing elements of the economy is currently restricting its growth and should be eliminated? Resilience must embrace adaptive behaviours. Simply tinkering with the status quo is not going to be enough. There should deep explorations aimed at recognizing what exists which have positive value to give and we were not doing enough with or have not been strategic enough with it. To get to the resilient economy all efforts must be taken to maximize the limited resources.


The Bahamas underlined its response to the crisis with a budget styled as “Resilient Bahamas: A plan for Restoration”. The three overarching aims of the budget are to protect the wellbeing and engender confidence of citizen and residents; maintain economic stability during the crisis and plant seeds for accelerated recovery. The budget communique further expanded on these three aims indicating more granularly that it is designed to protect the health and safety of Bahamians; providing adequate social support to vulnerable members of the community; stabilize the economy; sustain employment; and accelerate government reforms. The structure of the social response in the budget is generally impressive, given the circumstances. We may argue the actual allocations to the program but clearly, this approach is consistent with underlying concepts of economic resilience in that it sought to and broadly addresses the social environment. The 2020/21 budget is relatively rich with social treatments. In this regard, the country has gotten a number of things right in making allowances to support the social environment through provision for loss of employment, social welfare including food and rental and efforts to retain employees through direct funding or tax deferrals. The allocation to the Small Business Development Center of $55 Million is a big positive, given its impact on the social and economic environments.


The paper cited above notes that “a resilient economy is one that has the following characteristics: responsible business; positive local money and resources flow; asset base and enabling environment; responsive public and SME sector; strong community and civic voice; interdependence; and environmental sustainability”. This points to the importance of getting all segments of the economy right. Importantly, the health, effectiveness and efficiency of each segment will be a major determinant of the level of economic resilience that can be achieved. Then getting balanced interplay, not necessarily equal, between these segments of the economy is fundamental to how that resilience will be sustained. This is why the work of the ERC is so important. The Prime Minister announced that their reporting is due in September and we are anticipating that this balance becomes a pronounced feature thereof. The issue here is that all the relevant sector of society must be given due consideration.


While resilience includes economic growth, and in the case of The Bahamas, growth is very much needed, this is not the all-encompassing nature of the concept, only an important part thereof. There can be growth without achieving resilience. For example, a country with weak social network will struggle. The ability to allocate economic support without effective mechanism of reaching those negatively impacted by a disruption will carry very negative implications. As seen above, while one may argue the efficiency of getting funds to those in need, the social programs are in place. Therefore, from the perspective of the budget the major area that needs to unfold is the evidencing of a robust growth plan. If immediate impact is anticipated, it means that the ERC’s work would be constrained to the four broad new policy initiative spheres for 2020/21 and beyond stated, as noted in the budget communique. These are small business growth and development; national digital transformation; energy reform: renewable energy and solarization; and food security and sustainability. Because they are there, it is intuitive to conclude that these are the funded mandates. It would be fair to argue that matters not captured in the presentation, which was given with clear knowledge of the extent of the crisis, would be outside the funding realm. There is a lingering question as to whether these areas are sufficiently comprehensive to secure the stated aims. More importantly, is the strategy canvas wide enough to facilitate plans for adaption and transformation?


It is likely that the ERC will present on matters broader than those suggested above. The difference between having a broad review and a narrow one is important. In a broad review, one can ensure that the existing economic arrangement is fully assessed and ensure that there is effective interplay with other environments. This positions the planners to effectively identify gaps and therefore consider the possible next steps for filling them. This then positions the economy to realize return to vibrancy based on what existed, improve performance and efficiency from what existed, but importantly to secure new contribution from what is now added. While, a narrow remit may get you back to normalcy it will require a broad based scope to secure new growth. There are some important elements in the budget that must be built on and leverage for in this direction.


State owned enterprises reform to gain $100MM per year – efforts must urgently take these plans to fruition and relieve the burden from central government. Reduction of duty on building material to 20% - this should channel thinking in how to generate the maximum level of construction projects in the private sector. All requests for permits should be considered, projects for which approval have been slow should be given urgent attention; programs to renovate and redevelop properties can be further incentivized by government for strategic locations. The $515MM for capital projects must be given early attention. Rate reduction on farming equipment should not be seen as improved ability to maintain current levels of agricultural efforts but should give impetus for thinking about larger operations. This is (or must be seen as) a signaling of “big ideas time” for the agricultural sector. The utilization of public private partnership (PPP) should be better refined and in my view could become a pillar for advancing development in light of shortages of public funding and curtailment of external investments.


Consistent with this argument, in my opinion, we must get a plan from the ERC that is fulsome and holistic going beyond the suggested remit of the budget. The plan must be rich with creativity and strategic thinking. The plan should consistently ask and answer the question; “is this creating or destroying value?” Of course, such answers will be subject to limitations imposed by the need to provide public goods. The idea here is a shift from the status quo of low growth, being facilitated by freeing up productive capacity and potential that already exist, at little or no cost to the economy. While this appears to be the policy space suggested by the budget, going beyond is critical. Matters that the budget is silent on must also be addressed. For example, there has to be a position and a strategy for financial services against the backdrop of the EU threat and potential external pressure that may come to bear as big countries seek to claw their way out of the pit of this financial crisis. Not addressing this, having regard for its impact on the second leg of a two-legged economy would be a major oversight.


Together with the timely execution of the announced reforms, we must anticipate the ERC efforts pushing the country in the direction of seeing more pronounced interdependencies at play between the sectors cited. Their work is immensely important and by no means easy. It is my view that regardless of differences in outlook, everyone should be rooting for the committee to do well and to get it right. Can they do better than the output of the national development plan given the timeframe they are working with? Does the COVID-19 crisis provide the definitive context in which any plan proffered will, after due consideration be implemented? The expectations are high and in a real way, the fate of a country hangs in the balance. Not getting it right will by no means be fatal but will certainly be disruptive to a timely recovery.


RESILIENCE INDICATORS

The Centre for Local Economic Strategies (CLES) (www.cles.org.uk) outlines ten indicators that can be used to determine whether an area (in our case a country) is resilient. In brief, the first three of these are strength of the commercial sector; strength of the public sector; and strength of the social sector. For a resilient economy each of these sectors must be operating at or near optimal or at least at a high level. The commercial (or private) sector must therefore be prepared to innovate and invest in the growth of the economy. Private effort should become the main driver behind all major expansionary efforts. On the other hand, as alluded to earlier, the social sector must be aligned and operating with significant effectiveness and efficiency. Finally, resilience demands a strong public sector which is responsive and nimble enough. An administrative machinery that is well structured with a high level of certainty, disciplined and facilitative to the other two sectors. Without the latter being as described it become a significant limiting factor in any advancement and development. The way forward therefore must address the public sector reforms in a substantial way. Consistent performance with transparency and public education will contribute to improvement in public confidence, which holds implications for investor participation, especially local investors.


The next four indicators of resilience extended by CLES are commercial sectors’ relationship with the public sector; public sector relationship with the social sector; social sectors relationship with the commercial sector and health and wellbeing and their relationship with the local economy. This is the point made earlier in relation to the ERC’s work, the need to ensure that the interdependencies are actively at play. In the face of a health pandemic triggering a financial crisis the importance of this stand out in clear relief. Private sector and public sector must have a robust, healthy and vibrant working relationship. While many tend to default to adversarial roles, on all sides, and while the presence of a healthy tension is extremely worthwhile, more value is always going to be created when these sectors work as partners toward a common vision. The private sector supports and needs the social sector as it undergirds the quality and availability of its work force. How people live, the level of support when things go wrong, peace of mind, the “natural” environment, are all socially important elements which plays to the level of resilience an economy can derive. Afterall, the output of these directly affects the commercial and economic inputs. All remedial efforts going forward should take this into account.


The response of the government to the fall out of the crisis, with significant emphasis on supporting social programs fully explain the third of the four point being made here. Safety nets and provision of social support demands active engagement and participation of the public sector. Importantly engagement without the ability to fund what is necessary will render this interaction ineffective. Balance is therefore critical. Lastly, COVID-19 helps to explain the fourth item. The county’s response and the extent to which it could insulate itself against the shocks from the crisis was highly influenced by the state of health and wellbeing, the state of underlying health infrastructure and the extent to which the economic affairs of the country could provide new and urgent resources for these areas. Part of the Bahamian reality, for example, is the high level of non-communicable diseases present in the population. This placed many persons at high risk and consequently led to stringent decisions aimed at curtailing movement. Reflect on how the state of the health care system would have factored into the early decisions made and those that continue to be made. Reflect also, on how the economic state of the country influences the reopening decisions despite the shift in the status of the virus in our main market.


The final three indicators, relationship between the local economy and working within environmental limits; relationship between the local economy and local identity, history and context; and relationship between the local economy and both local and national governance. I view these as identifying the factors that exert limiting influence on the economic efforts. Environmental limits play a role in resiliency. Consider for example the recently discussed and refuted proposal involving five hundred thousand acres of land in Andros. The thinking is that this would have a significant negative impact on delicate ecosystems and impact the way of life for persons on that island. Environment, identity, history. All these factors affect, or contextualize, the potential economic value that such a proposal could bring. Consider further the pronouncement of the Prime Minister being unequivocal that there will be no such project. Local and national governance can dictate the economic fortunes of an economic area. This is why effective governance is critical to economic resilience. The remedial work, adaptation and transformation required today must therefore see reforms to governance implemented. As an example, effective local government with the ability to create real economic centers across the archipelago is part of the recipe for deeper national economic resilience. Vulnerabilities can be mitigated if there is greater “economic diversity” throughout the country. Again whatever is done will naturally give due respect to the Bahamian identity, its historical norms and environmental wellbeing. Resilience takes all these elements into consideration. This is why the argument is made that to achieve this desire, the focus has to be broad based and deep. A simple return of tourism and the normal level of commerce and export earnings will not be sufficient.


Having established that resilience is a function of relationships it becomes clearer what we must anticipate from the ERC or from policy makers, the private, social and public sector going forward. Every solution applied should be practical and properly designed to move the country forward with more effective and efficient ways of thinking, performing and achieving. Every solution applied should happen against a clearly defined viewpoint of the future and the treatments should advance efforts to get there. That future for the Bahamas is one with an economy where there is consistent growth of at least 2% annually. It is a future underlined by consistent, robust and effective debt management and fiscal consolidation programs. A new era of systematic treatments of structural and fiscal reforms. A future economy where there are greater sources of exports and therefore diverse means of earning foreign exchange. The stakes are consistently high and demand no less. Business as usual will defeat the effort to secure the resilience we desire and need.


THE GROWTH AND DEBT OF RESILIENCE

If the problems faced by The Bahamas are to be solved in a sustained way, then it is critical that there should be proper problem definition. What exactly is it that ails the economy? The answers need to be on multiple levels for solid solutions to be realized. Firstly, COVID-19 has spawned a financial crisis of significant proportions that has effectively taken away the entirety of the countries foreign exchange earnings. This is a reality beyond the control of anyone. Is there anything that existed prior to the event that either made the impact worse or increased the level of vulnerability faced? There are a few: debt, low growth, concentration of earnings, low productivity, high cost of energy, challenges with the ease of doing business, and the need for public sector reforms. If the issue caused by COVID-19, which is beyond our control, were fixed, would there still be fundamental problems to grapple with? Yes, the same issues highlighted before. Can we fix the COVID related issues? No, we can only mitigate their impact! How can we better afford to finance the mitigating treatments? We need a more resilient economy, a broader fiscal space and deeper economic breadth. If this rudimentary reasoning holds true in any regard then our true north starts to emerge with great clarity! The foundation of the economy must be given attention and normative practices questioned with the object of effectively overhauling to maximize output.


The Bahamas, like many small island states struggles with two important challenges. Low growth and high debt. I am aware that before the COVID crisis, the latter, in the case of the Bahamas, is arguable. However, when $400 million of a $3 billion budget goes to pay interest on debt it is time to start taking close notice. There is no question that a way must be found to remove (or reduce) this burden from our economic neck. I am, however, not a proponent of simply seeking to pay down debt. From a credit granting perspective once one has the capacity to generate revenue, and demonstrably the quality of future revenue is good, the capacity to borrow comfortably exists. Assessments using the standard measure of debt to GDP tend to focus too much on the debt side of the equation and too little on the GDP itself. While I do not argue that it is easy to secure growth, I readily make the point that growth trying to secure growth consistently using the same historical arrangement is rather difficult. In the remedial actions to come, the task, though complex, can be oversimplified by calling for greater focus on the denominator. Grow GDP and the ratio falls. Grow GDP, and the fiscal space is likely to expand accordingly. Grow GDP and the capacity for counter cyclical spending expands. Grow GDP and create greater space for a more resilient economy. If you accept most or all of those statements then you would agree that growth must be the focus, growth is necessary!


There is a famous eastern quote which states, the obstacle is the path. One of the biggest obstacles faced by the Bahamas is its reliance on concentrated sources of export earnings, namely tourism and financial services. The concentration for tourism gets more acute when you consider that 80% of the market is the USA and further so given that most of that market is on the eastern foreshore, primarily Florida. This come to life in real terms with COVID-19. All projections called for a June end to the crisis and the economy must open by then. Local business are feeling the effects, unemployment is rocketing sky high, and spending on social support is astronomical. New York, the initial USA epicenter of focus seems to be doing a fantastic job of bending the curb. All the while, some other states are rejecting the idea of social distancing. We are ready to go on July 1st and the source of our biggest market, within the 80% market, is seeing record cases of infection spread. Still we must open the economy or face the real option of chronically hurting it. What if we had a mature digital center of excellence in Grand Bahama, what if The Bahamas was a recognized center of excellence for financial services training, what if we could cut significantly into our potential food bill by producing locally, what if there were larger internal markets to support commerce, what if we had multiple exportable goods and services? The answer would undoubtedly be that there is a greater ability to bounce back. The answer would point to a more robust economy. The answer is likely to demonstrate wider economic participation and dispersion of commerce. So what if we took a different look at how we approach the recovery?


Currently the Bahamas has national debt projected at $10.5 billion with contingences just over $700 million. Based on the recent budget presentation we all understand that debt to GDP will rise to around 82%. One important aspect of debt that we do not often consider is the impact of government domestic borrowings on the productive economy. Ignore for the moment what government uses the money it borrows to do. More than half of the national debt is domestic. This is funding which in some ways crowd out the private sector. Institutions are very willing to lend heavily to the less risky sovereign and with this high demand have no problem ignoring opportunities from the commercial sector. The net effect is that entrepreneurial efforts starve for funding which in turn has a negative impact on the economy. Domestic investment become an inadvertent victim of domestic government borrowing. The Bahamas also has an additional wrinkle to its debt reality. A number of local institutions that manage long-term liability obligations with significant government stock holdings. These are primarily National Insurance Board (NIB), insurance companies and banks to a lesser extent. This fact places adverse pressure on the country’s monetary policy space. There is a clear recognition that reduction in interest rates during a crisis could be a valuable stimulus. The net impact on the economy though could be disastrous. Such a move would result in significant asset value reduction in say NIB, that would demand an increase in contribution (“tax increase”).


According to the IDB, there is a funding gap for SMEs in the Bahamas of approximately $180 million. The nimblest segment of any economy, especially during a crisis is the SME, and it lacks significant funding. The government must now bridge that gap with funds from its already narrow fiscal space given its importance. Note how the DPM underlines this, “We anticipate that 500 entities, new business persons and entities which have been successfully in funding, we anticipate they will carry some of the load through this interim to stimulate economic activity which waiting on tourism”. Consider the potency of the government being able to direct an additional quarter of the projected interest payment towards this sector. Therefore, the efforts currently underway by the government in the arena of fiscal reform, promoting greater transparency and accountability should continue. Efforts of debt management and all attendant reforms should continue robustly and where necessary accelerated. Nevertheless, as previously stated, and a recurring theme throughout, all attention to debt must be undergirded with clearly enunciated growth strategies and initiatives which will facilitate and support the growth. SMEs provide a very viable option in this regard, as not only does it generate economic activity but also it holds great implications for the social wellbeing therefore deeper resilience.


The buildup of debt in the Bahamas is because of fiscal deficits. On average, over recent years, national expenditure is around $3 billion. On average, there is a deficit of around $500 million. Some years, this is less and others more. The current state of affairs, as a result of COVID-19, is a deficit of $1.3 billion and a projected $800 million in 2021/22, both of which could be larger having regard to the way the crisis continues to unfold. Perpetual fiscal spending is only sustainable if there is reasonable real GDP growth. As stated before, this should be at least 2% annually, real growth. The reality is that when looked at objectively, it is clear that even a budgeted expenditure of $3 billion is not sufficient to bring the country’s infrastructure to the level it needs to be. Greater injection is needed in important areas of the economy. The ability to invest more from “savings” realized from debt management will help to spark greater growth. In this regard Jamaica, before the crisis, stood as example. Having successfully emerged from debt management programs there was clear evidence of greater infrastructural investments and allocation to the social sector of the economy. These activities were fueling growth, realized over twenty consecutive quarters. A positive development but unfortunately, on analysis, not sufficiently robust. However, the point is made. There is significance in proper debt management treatment, and it can coexist with a growth strategies program.


Despite views to the contrary, more enabling spending will be needed from government if the country is to find real alternative sources of export earnings. Fledgling industries will demand support for a period either through direct grants, concessionary loans or concessions on taxes. New industries will only grow if protected. To facilitate this, the government will either reduce its fiscal revenue or increase direct contribution. Regardless of the approach, more will be needed. The point here is that securing the resilience that is needed it must be funded in the first instance. Debt financing has significant limitations as ultimately it undermines the fiscal space and ability to do just that. The only remedy therefore is growing the economy. In a way, this is a circular argument but should be easily understood. Without growth, the desire for a more robust, resilient economy will not be achieved. Without growth, the ability to better absorb the effects of external shocks and the “once in a lifetime storms” which are occurring every couple of years will not be optimized. Without growth the ability to consistently bounce back from a global financial crisis that seems to develop every decade or so becomes diminished.


In assessing the fiscal challenges of Caribbean countries with high debt burden, the Caribbean Development and Cooperation Committee (CDCC) stated in its October to December 2013 newsletter, “Although the debt restructuring programmes have improved short to medium-term fiscal outcomes, they are inadequate for achieving long-term fiscal sustainability. This stems from the fact that the programmes are not well anchored in a growth and competitiveness strategy, which is essential to sound public finances in the region. Such a strategy should articulate how policy makers plan to re-engineer traditional sectors such as tourism and agriculture, and to develop new sectors such as the creative industries as drivers of growth.” The financial crisis of 2008 has many similarities to what is happening today in terms of actions needed for recovery. The current crisis holds the stark difference of eliminating earnings and shuttering economies. However, this is the argument I make here and the same one I have been making since 2012. The Bahamas and the wider region are encased in a long running debt crisis. Viewed from a survival perspective, things may appear to be fine. Looked at from the point of view of unexploited potential and the situation changes radically. Until and unless economies within the region seriously secure growth to match efforts of debt management there will be no significant improvements, generally, in the standard of living. This holds true for The Bahamas despite an inherent capacity to perform much better than other countries in the region.


The discussions emanating out of the recent budget around efforts to jumpstart production in the area of agriculture is a positive one. This has the potential to diversify foreign exchange earnings, or reduce imports on agro-products. This sector has the ability to help retain more tourism dollars in the country by providing a greater local input into that sector. The possibilities are great. It must be seen though within the context of reengineering the economy. I am aware of the focus on the creative industries, orange economies, discussions around blue and green economies. Every single element possible must be brought to bear on revving up the earning and productive capacity of the country. There has to be a real effort to explore how either through diversification within sectors or looking for vertical integration opportunities the country either takes more out of what exist or create new streams of earnings. Additionally, all segment of public life must be geared towards this growth strategy. As an example, the education apparatus of the country should be primed strategically to facilitate and support future growth. Efforts in this arena should be fully aligned with the objectives of a national vision. For example, is the educational system fully prepared to facilitate the drive for greater digitization in the economy? If not, what shift strategic shift are being made? The match to growth and greater resilience is not simply a focus on the few traditional and well-known areas of income. Rethinking the entire national approach, setting expectation and demanding specific performance goals from all segments of the national machinery is critical to success.


THE RECAP

Based on our analysis to this point it is fair to conclude that The Bahamas suffers from low growth and now, based in 2020/21 results, high debt burden. The debt to GDP is projected at 82% with the possibility of being higher. This currently rest on whether the modeling 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 normalizing 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 tradeoffs. Consider again the views of the 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, 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 though is clear is that failure to embark on this path will ultimately be more costly.


ANTICIPATED ACTIONS

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 output from the ERC will be rich with initiatives designed to achieve just this. 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 occur 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 contribution to the broad economy, is 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 persons 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 compare 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 seen already how debt repayment takes away from economic expansion. Again, another of those almost circular chicken or egg situation. 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 program 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 improving the competitiveness? I cannot be sure whether any of these would form priority items for these 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 address the challenges that have been perennial retardants to growth.


CONCLUSION

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 though be ready to make the tough decisions and push the envelope to uncomfortable levels without harming the economy further and based ion 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 is a critical part 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 takes on a twofold nature. Reduce debt burden which 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 which securing incremental improvements is the standard of the national living. The work before them is therefore infinitely important. It’s 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 narrow.


If I were to be bold enough to restate one of the DPM’s statement, it would be, “We anticipate that the committee will help us to visualize and to conceptualize what this economy may look like together with recommendations that we are able to execute. We anticipate that they will place special focus on non-traditional sources of revenue and elimination of current restriction to expansion”.


We, the country, anticipate that the broad-based experience available, utilizing strong technical expertise and industry knowledge will provide the practical solutions needed to get the country to that end goal. The times for tipping around the real economic and structural changes needed has long passed but has more clearly crystalized in March 2020 when 50% of GDP, 60% employment and approximately 70% of government revenue “evaporated” overnight. The expectation is that the work will positively contribute to the strategic thinking necessary to create paradigm shifts, exploit opportunities and help to take to the country to the next level, socially and economically.



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