By NEIL HARTNELL
Tribune Business Editor
A former finance minister fears The Bahamas could be “in really dangerous territory” by June 2021 with a national debt that is equal to the size of its economy.
James Smith, pictured, who held the post under the first Christie administration, told Tribune Business that The Bahamas may be in “one place where we never wanted to be” 13 months from now with a debt-to-GDP ratio that is close to, if not matching, 100 percent.
This would mean that Bahamian gross domestic product (GDP), or the economy’s total output, would be equivalent to the debt burden that current and future generations will have to pay back after the combination of COVID-19 and Hurricane Dorian added substantially to the country’s fiscal woes.
Mr Smith said the surge in the country’s debt-to-GDP ratio would be caused by a combination of the economy’s COVID-19 contraction, which the Prime Minister himself estimated could be as high as 15 percent to 20 percent, and the hundreds of millions of dollars that the Government will likely have to borrow in Wednesday’s Budget to both cover its fiscal deficit and stimulate an economic recovery.
Warning that “tough decisions, really tough” will have to be made by the Minnis administration, Mr Smith told this newspaper: “GDP is likely to shrink by $1bn, and borrowing will be about $1bn. I’m thinking by the end of the fiscal year our debt will be 100 percent of GDP.
“I think you’re looking at anywhere between $600m to $900m in new debt, and a reduction in GDP of about $1bn. You are in really dangerous territory for a developing country, one place where we never wanted to be.”
K Peter Turnquest, deputy prime minister, previously told Tribune Business that government revenues for March were some 50 percent down year-over-year. If that trend holds for a full Budget cycle, based on prior year total revenues, the Government could lose around $1.2bn in income as a result of the COVID-19 fall-out.
Such a gap would have to be closed by a combination of spending cuts and borrowing, with the Government last night confirming it has applied for a $252m “emergency” International Monetary Fund (IMF) loan to help it meet its obligations for the remainder of the 2019-2020 fiscal year. Mr Turnquest recently projected that the 2019-2020 deficit will finish at $800m or more, higher than the post-Dorian estimate of $677.5m.
Given this outlook, Mr Smith’s estimates do not necessarily look far-fetched. Standard & Poor’s (S&P), as well as Dr Hubert Minnis and John Rolle, the Central Bank’s governor, have warned that the Bahamian economy could contract by around $2bn this year.
Should that occur, 2018’s $10.763bn real GDP figure suggests such a contraction - combined with an at or near $1bn rise in the Government’s present $8.204bn debt - could take The Bahamas above or to the 100 percent debt-to-GDP ratio forecast by Mr Smith.
The Government, meanwhile, in a statement last night said it had managed to keep more than 6,500 Bahamians employed by 76 companies through approving $5.7m worth of relief through the tax credits and deferral initiative run through the Department of Inland Revenue (DIR). Some $60m in credits and deferrals had been allocated to this payroll support programme.
At mid-May, the $20m allocated to the Business Continuity Loan initiative targeted at micro, small and medium-sized firms had almost been completely earmarked for applicants. Some $19.4m had been approved for 283 businesses, with $3.7m already disbursed.
As for unemployment benefits, some $28.7m has been paid out to 26,000 claimants at mid-May. “Additionally, NIB issued $6.2m million in payments to approximately 6,100 recipients of the Government’s unemployment assistance initiative for self-employed individuals impacted by COVID-19,” the Ministry of Finance added.
Mr Turnquest added: “We know the demand is still there for these programmes, and I can assure Bahamians that in the new Budget we are making adequate provisions to ensure no Bahamian goes hungry. We are prioritizing the needs of vulnerable Bahamians who are depending on our support and protection.
“Given the ongoing COVID-19 emergency and the state of the global economy, this is going to be an understandably unprecedented budget, and the Ministry of Finance will once again engage in public education around the annual budget to ensure the Bahamian people and all of our stakeholders are properly informed about the budget plan and all of its key elements.
“We are not going to sugar coat the realities we face, as they have factored heavily on our decisions. We are going to be clear about our priorities, and what I can say about that, at this time, is that we will make proper provisions to protect the health and safety of Bahamians and residents and to provide sufficient social support. We will do what we must to stabilise the domestic economy, to maximise employment and to transform this crisis into opportunity for our future recovery.”