By NEIL HARTNELL
Tribune Business Editor
The IMF yesterday gave the Government a much-needed “boost of confidence” with an upbeat assessment of its economic and fiscal reform progress despite the “many challenges ahead”.
KP Turnquest, deputy prime minister, told Tribune Business he was under no illusions about the scale of the task confronting the Minnis administration when it came to job creation and achieving higher economic growth levels even though the International Monetary Fund (IMF) had largely endorsed its efforts to-date.
“It is a bit of positive news that gives us encouragement that we’re going in the right direction, so we will continue to proceed with the reforms we have in progress and look forward to deepening the initial results achieved thus far,” Mr Turnquest said of the IMF’s latest verdict.
“This is a boost of confidence that we are moving in the right direction. There’s a lot of work to be done but we are committed to transforming the way business is done in the country, especially the level of accountability and transparency we aspire to.
“This Fiscal Responsibility Act, and Fiscal Responsibility Act, will ensure that we not only have the level of accountability and transparency we want, but that we will have the best minds in the country put towards safeguarding its future fiscal affairs,” he continued.
“Overall we are encouraged, but I don’t take these things as a pat on the back. I take them as a sign we are moving in the right direction, and we recognise there is much, much work, and many challenges ahead, for us to overcome.”
The content and tone of the IMF’s latest report differed markedly from the downbeat, pessimistic evaluations released during the former Christie administration’s final years and the initial months of the current government’s term in office following the May 2017 general election.
While those assessments focused on The Bahamas’ deficit and debt woes, plus low economic growth and the factors causing this, the IMF’s latest statement following its December 3-7 visit gave the Government credit for delivering on its promises - especially in the fiscal arena.
Besides underpinning its fiscal consolidation efforts with the Fiscal Responsibility Act, which promises enhanced scrutiny and oversight of the Government’s financial affairs, the IMF also acknowledged the deficit’s reduction from $660.4m in 2016-2017 to $414.9m last year.
The Fund also praised the Government’s decision to establish a national disaster relief fund, something it has recommended in recent Article IV reports on The Bahamas, with suggestions that this nation build reserves to a level equal to between 2-4 percent of gross domestic product (GDP).
“The enactment of the Fiscal Responsibility Law (FRL) is a welcome development that supports the Government’s efforts to secure fiscal sustainability and put debt on a downward path,” the IMF assessment said yesterday.
“Implementation of the FRL framework will also increase transparency and enhance policy credibility. The Government’s plan to establish a disaster relief fund as part of a broader strategy for preparedness and risk reduction policies is a welcomed step.”
Mr Turnquest yesterday reiterated the Government’s determination to adhere to the consolidation road map and targets set in the Fiscal Responsibility Act, which mandate that it achieve a deficit equivalent to 1.8 percent of GDP - some $237m - this fiscal year.
He added that current revenue levels had the Government on target to hit this goal, and agreed with the IMF’s call yesterday for “decisive measures” to contain government spending over the short to medium-term - one of the few weaknesses identified by the report.
“The Fiscal Responsibility Bill calls for certain levels of expenditure to GDP and we are committed to those levels,” Mr Turnquest told Tribune Business. “At current projected revenue rates we believe that will allow us to achieve our fiscal consolidation targets.
“Of course, we recognise we have to contain our expenditure, barring unforeseen circumstances and taking into account the potential for natural disasters, so we are hopeful we will be able to meet our target.”
The IMF, in its statement yesterday, credited the Government with narrowing the deficit during the 2017-2018 fiscal year, although it seemingly ignored the fact that the $415m worth of “red ink” had overshot Mr Turnquest’s year-end projection by $105m.
“The Government has narrowed the fiscal deficit from 5.5 percent of GDP in fiscal year 2016-2017 to an estimated 3.3 percent in fiscal year 2017-2018,” it added. “In the budget for fiscal year 2018-2019, the Government committed to further fiscal consolidation, targeting an overall deficit of 1.8 percent of GDP. This is supported by various revenue mobilisation measures.
“As noted during the 2018 Article IV consultation, fiscal consolidation should also include decisive measures to contain expenditure growth in the short and medium-term. The team welcomed the Government’s transparent recognition of accumulated arrears and the budgetary provisions to clearing them, as well as the plans to put in place for robust expenditure control systems.”
The IMF is thus praising the VAT hike to 12 percent and other revenue-raising austerity measures imposed on Bahamians, as well as the Minnis administration’s plan to clear some $360m in unfunded arrears over the next three fiscal years.
Mr Turnquest, meanwhile, admitted that containing the Government’s $2.7bn in annual spending will not be easy. While conceding that inflation and rising business costs may increase expenditure, he said the administration planned to “hold” it in line with GDP growth.
“This is not an easy call,” he told Tribune Business. “We do anticipate that there will be growth in expenditure as the cost of doing business goes up, but we’re hoping to hold the line with the growth in GDP, so we have a reduction in overall expenditure compared to GDP growth. So we hope this will help us to attack the level of legacy debt ($8bn in total).
“As we get this under control it gives us a lot more flexibility to do some other things and stimulate the economy. We realise this is not an overnight fix. It does come with its challenges from a public expenditure and public expectation point of view. We are committed to righting the ship so The Bahamas is in a strong position to take advantage of opportunities and weather any unexpected downturns globally or locally.”
The Washington-based Fund’s report is timely for the Minnis administration given growing public dissatisfaction with the seeming lack of improvement in their living standards, which erupted into the recent demonstration outside the House of Assembly.
The protest, which voiced multiple concerns over soaring energy costs and high taxes, highlighted the steep price many Bahamians are paying for years of fiscal profligacy by successive administrations that has resulted in tax hikes and other austerity measures that were yesterday praised by the IMF.
The Government has also been hit with labour unrest in both the public and private sectors, further confirming that its post-election honeymoon - if it ever had one - is well and truly over. The further confirmed that many Bahamians are still reeling from reduced living standards and disposable incomes, and a higher cost of living, stemming from tax hikes and higher global oil prices.
While affirming The Bahamas’ current GDP growth projections of 2.3 percent and 2.1 percent for 2018 and 2019, respectively, the IMF said this nation’s vulnerability to global recessions and natural disasters meant it needed to exploit the opportunity to build buffers against external shocks.
“The Bahamian economy continues to recover, with real GDP growth projected to reach 2.3 percent in 2018 and 2.1 percent in 2019,” the Fund said. “Growth is driven by an increase in tourist arrivals, paired with an expansion of hotel room [Baha Mar] and airlift capacity, and against the backdrop of the continued expansion of the US economy.
“This calls for maintaining strong fiscal and financial policies to bolster the Bahamian economy’s resilience, and build buffers should external conditions become less favourable, and for advancing reforms to achieve more inclusive growth over the medium term.”
This appears to be a nod towards greater job creation and a more even distribution of wealth, although the Fund’s statement yesterday ignored its own projections that Bahamian GDP growth will taper off post-2019 back to its 1.5 percent long-term average.
Acknowledging the need to improve the ‘ease of doing business’ to generate higher GDP growth, Mr Turnquest said yesterday: “We know we have some structural impediments to that growth and have to continue to push through them.
“We have to ensure we remain an attractive destination for foreign investment, and protect the financial services sector and other industries, as we look for ways to deepen connectivity and linkages throughout the economy and find other investment avenues to stimulate growth.”