Pinder: Growing debt unsustainable
Elizabeth MP Ryan Pinder yesterday charged that the government’s “alarming” rate of borrowing puts the country on a course to unsustainable debt levels.
However, in the government’s defense Minister of State for Finance Zhivargo Laing said that as the economy weakened the government was faced with several choices, either borrowing, increasing taxes or firing civil servants.
Pointing to a recent International Monetary Fund (IMF) report, Pinder noted that the deficit of the central government deteriorated in fiscal year 2010/2011 as expenditure increased disproportionately.
“The IMF also made note that public debt continued to rise, reaching an alarming rate of almost 62 percent of GDP,” Pinder said during yesterday’s debate on a compendium of financial bills in the House of Assembly that seek to improve the financial services industry.
“Even though growth may be forecasted, which one can easily question, the observation by the IMF is that a weaker fiscal and debt position will persist in the near term. The IMF has projected, based on the deficit trends of this government, that the overall public debt will be an alarming 69 percent of GDP by 2016. It seems that this FNM government is determined to put The Bahamas on a course to unsustainable debt levels.
“As we sit here today at a debt of 62 percent of GDP, interest on government debt is the single largest line item in the budget. What will it be when debt is 69 percent of GDP? And this 69 percent estimate is assuming growth of 2.5 to three percent. I ask you, does it feel like the Bahamian economy is growing?” he added.
Pinder said the government is putting politics over people. However, Laing said “nothing could be further from the truth.”
According to him, in order to reduce the deficit, the country needs significantly more growth.
“Growth has to happen,” Laing said as he wrapped up debate on the bills yesterday evening.
“The alternative is if we don’t have more growth, more revenue, then we can’t reduce the deficit,” he added.
Laing said most of the government’s money in the budget goes towards the salaries of civil servants.
“We have determined that there is a necessary balance that we must strike based on the needs of the economy and the needs of the people,” Laing said. He added that the IMF’s advice will not be as sensitive to the country’s societal needs as the government must be.
He acknowledged that the government has borrowed a substantial amount of money over the past few years, however, he added, “The substantial spending will put The Bahamas in an excellent position for future growth.”
Laing also pointed out that the debt grew considerably under the Christie administration.
At an IMF meeting two months ago, Prime Minister Hubert Ingraham stressed that governments in the region will have to manage debt levels.
“Like much of the Caribbean, The Bahamas is a small open economy that is highly tourist dependent,” said Ingraham, who was addressing the opening of the 2011 World Bank Group and the International Monetary Fund’s annual meetings in his capacity as chairman. “In common with the region, we are among the most susceptible to economic shocks, the effects of climate change and natural disasters. Our economic fortunes are tied very closely to that of the U.S.
“With a jobless low-growth recovery anticipated for the next few years, the region will need to redouble efforts to contain its debt burden while making prudent public sector investments.”