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Govt Warns Of $800m Deficit

Deputy Prime Minister Peter Turnquest.

Deputy Prime Minister Peter Turnquest.

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

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”.

Comments

John 2 months, 3 weeks ago

While government must hope for short term recovery, it must plan for long term. Tourism, for example depends on what happens in tourist markets and whilst New York claims it has seen the apex in its Corona cases and now a decline, a lot of the US have not yet or are just now seeing their surge. And same for most of Europe and Asia. So why are parts of this country that have had their boarders closed for five weeks not allowed to return to normalcy? Why can’t farmers in Abaco and Eleuthera and cat Island and Long Island and Exuma and elsewhere go back to the farms and be given stimulus money to produce even more crops? If they miss the planting season they miss that crop for the entire year. Same for fishermen. Are we leaving the seas open just for poachers? Cut down on the food bill and the fuel import bill. A good time to get Bahamians back into the habit of purchasing locally grown produce. Even schools in those islands can now be open. And even New Providence and Grand Bahama must be put on a rotation where business owners can continue to survive. As food stores and pharmacies traffic return to normal, their hours can be reduced by at least a day to allow other businesses to operate without returning to crowded streets and infringing on social distancing. And remember hurricane season is right around the corner.

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realitycheck242 2 months, 3 weeks ago

agreed John, all islands in the Bahamas with no Corona cases should be allowed to go back to normal operation. Covid-19 will be a long term problem. Even cities in China are reporting that some recovered cases are testing positive a second time after they have been Corona free.

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TalRussell 2 months, 3 weeks ago

Colony long way returning anywhere nearing normalcy!
The contrary. Out Islanders haven't exactly been welcoming neither of natives nor foreigners making land on their islands.

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Well_mudda_take_sic 2 months, 3 weeks ago

How is our Hurricane Reserve Fund coming along? June 1 is almost here and we all know our country under Minnis is jinxed.

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John 2 months, 3 weeks ago

Is Minnis jinxed or being fire tested?

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Well_mudda_take_sic 2 months, 3 weeks ago

Nettie made a little look-a-like doll of Minnis back in May 2017 and has been poking small pins in it at least once a week ever since. Not good!

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joeblow 2 months, 3 weeks ago

… shows that we live in an artificial economy bolstered by borrowing! The solution is obviously more borrowing!

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BONEFISH 2 months, 3 weeks ago

The Bahamian economy is mainly tourism based.Tourism earnings is the main source of foreign exchange.The majority of our visitors come from the US which is hard hit by the COV19 pandemic.It may be very tough in this country for some time.

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Socrates 2 months, 3 weeks ago

'Getting loss-making state-owned enterprises (SOEs) to a break even/cost recovery position,' That has never happened. How could it possibly happen now? If it could, why did we not insist on it before? That option is a non-starter. Sorry, try again.

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John 2 months, 3 weeks ago

How much has changed with BEC/BPL since the last major economic collapse in 2008? Probably the most significant thing is the name change. And is that BPL an indicator of how far back the economic lag is in this country. Still in the age of fossil fuel. Should the government be hedging funds outside the country and stimulating economic growth inside the Bahamian economy. Can domestic tourism help soften the blow of some family islands or will it be too much of a health risk?

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concerned799 2 months, 3 weeks ago

Puzzled to see how getting loss making BPL off the public books by selling it to the private sector so it no longer required guarntees is not in the best interests of the Bahamas.

What;s the downside a private owner could keep rates at $100 per barrel oil and just not pass on any of the savings when oil went to $50/barrel and then $20 per barrel?! Ah, that is already happening, notice rates did not go down despite the huge fall on oil prices since 2014.

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BahamaPundit 2 months, 3 weeks ago

The Bahamas' possible debt crisis has made the international financial press in an article entitled Puerto Rico 2.0 (Yahoo Finance & Bloomberg). The Article states that other Caribbean tourist dependent economies will be bailed out by their colonial overseers. Turks and Caicos and Bermuda economies will be bailed out by the UK and Aruba economy by the Netherlands. Poor Bahamas only has IMF to turn to for a bail out!!! Our independence now is seen as very shortsighted. According to the Article, Aruba is pushing to diversify its economy with the cultivation of medicinal cannabis (what about us????). See article here: www.finance.yahoo.com/news/puerto-ric...

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DDK 2 months, 3 weeks ago

The DPM SOUNDS like he is talking sense but failed to mention opening up the country and allowing business to operate, including liquor stores, thereby producing revenue for the Treasury. Nassau should put a permanent curfew in place, say five to nine weekdays and Sundays and five to midnight Fridays and Saturdays. He also failed to mention weaning ourselves from our total reliance on tourism and our addiction to borrowing from foreign concerns.

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