By NEIL HARTNELL
Tribune Business Editor
The government is facing an $800m deficit for this budget period with “next year looking even worse”, the deputy prime minister revealed yesterday, as revenues are off by up to 70 percent.
K Peter Turnquest, in a Zoom conference with members of Old Fort Rotary Club, said there was “no way of sugar coating” the grim economic and fiscal outlook facing The Bahamas given that the COVID-19 pandemic’s effects will be with this nation and its major tourism source markets for longer than initially projected.
What was anticipated to be a three-four month health crisis looks like it may last for at least six to nine months, he added, describing this as a “significant blow” to an economy heavily reliant on external forces to drive jobs, incomes and foreign exchange earnings.
Mr Turnquest, though, was cool towards calls by the likes of Alfred Sears QC, a former attorney general, for The Bahamas to seek “forgiveness” from its international and local creditors for at least part of its near-$9bn national debt.
He argued that The Bahamas’ status as a high, or middle, income country meant “this was not really an option for us” as lenders would not simply agree to “write-off” a portion of what was owed as they might do for the likes of Haiti.
And the deputy prime minister also warned that borrowing up to $2bn, as called for by his opposition shadow, Chester Cooper, would burden current and future Bahamian generations with an extra $180m in annual debt servicing (interest) costs.
Mr Turnquest suggested that increasing “already high debt levels” by such a significant sum threatened to create a debt spiral that will ultimately “collapse” in on itself, with the end result that The Bahamas might default or be forced to seek a bail-out from the likes of the International Monetary Fund (IMF).
He added that while the Government has the means to borrow the sums suggested by Mr Cooper, given that hundreds of millions will be required to cover both its financial holes and revive the economy once the pandemic has passed, it will also focus on “managing expenditure” to minimise the amount of new debt taken on.
Confirming that the Government is seeking to get through the last three months of 2019-2020 without undertaking significant new borrowings, Mr Turnquest said its strategy is to try and “wrap” all such activities into the 2020-2021 Budget that will be unveiled on the last Wednesday in May.
Confirming that the economic and tourism shutdown means “relatively little revenue” is being earned by the Government, he added that the 2019-2020 fiscal deficit is likely “to come in at as much as $800m” due to the ongoing COVID-19 fall-out.
This represents a further $132.5m increase from the revised $677.5m post-Hurricane Dorian forecast that was approved by Parliament as recently as February. It gives an early insight into the fiscal damage being inflicted by a pandemic which is driving the Government to a record annual deficit, which measures by how much its spending exceeds its income.
Mr Turnquest warned that the 2020-2021 deficit is “looking even worse” due to COVID-19’s lingering effects, with the Government likely to miss out on the VAT and import tariff revenues it expects to earn during the summer and fall months.
Responding to calls for The Bahamas to ease the pain by seeking forgiveness for some of its debt, the deputy prime minister replied: “That’s not really an option for us as we’re a high income or middle income country, and lenders are not going to write-off that debt as they would a Haiti.
“In addition to that, there has been some commentary about the level of borrowing the Government should undertake all the way up to $2bn. The difficulty with borrowing $2bn is not necessarily finding the money, although it will be difficult in this environment, but paying it back.”
Warning that the debt servicing costs associated with borrowing an extra $2bn work out to “upwards of $180m a year”, Mr Turnquest added: “That will be further tax dollars that we will not have available in an already-stretched Budget.
“We have to be careful about the amount of debt [taken on] as it runs into the long-term, and will saddle future generations with $2bn of debt.” With The Bahamas having amassed annual deficits reaching into the hundreds of millions since the country’s independence in 1973, Mr Turnquest said the country had “rarely paid that back” in terms of lowering its debt costs.
“To add $2bn to already high debt will be an onerous challenge,” he added. “It would grow debt year after year until such time we have a collapse, and that’s not something we’re particularly keen on...... There are persons willing to lend us money; they are beating down the doors to do so but, as in any crisis, they are looking for opportunities and we have to be careful in doing so.”
While the Government would have the capacity to borrow the sum suggested by Mr Cooper if it became absolutely necessary, Mr Turnquest said it was currently “looking more to manage expenditure and be as prudent and careful as we can”. Getting loss-making state-owned enterprises (SOEs) to a break even/cost recovery position, and finding new revenue sources, also form part of the strategy.
“The bad news is that we’re in for a rough period,” the deputy prime minister added. “There’s no way to sugar coat that. We will have to make tough decisions. We will have to go to the Bahamian people cap in hand to ask them to tighten their belts. We have a plan, know what we have to accomplish and can be strategic about it.
Calling on all Bahamians and the private sector to “put on our thinking cap”, and devise new ways to grow the Bahamian economy and develop revenue streams for the Government, Mr Turnquest reassured that The Bahamas’ fixed exchange rate regime and one:one parity with the US dollar is not in any danger.
He said the forecast $1bn “draw down” on the foreign currency reserves during 2020 would still leave them at a “decent” level, given that they entered the COVID-19 crisis at more than $2bn. “We have the ability to borrow in foreign currency to support the peg,” Mr Turnquest added.
“We are looking to bolster that through borrowing in foreign currency to support the foreign exchange levels. That comes with its own risk. Whatever you borrow in foreign currency you have to pay back in foreign currency, so you have to be careful between borrowing in local and foreign currency, but if we have the need to do that we have the capacity in the short-term.”
Mr Turnquest also pledged that the National Insurance Board and social security system will have sufficient financial resources “to ensure the most vulnerable among us don’t fall through the cracks”.