Saturday, Nov 16, 2019
HomeBusinessEfforts to reduce debt-to-GDP ratio ‘not working’, says Cargill

Efforts to reduce debt-to-GDP ratio ‘not working’, says Cargill

With The Bahamas’ sovereign credit rating being downgraded to ‘junk status’ by Standard & Poor’s last December, former Director of the National Insurance Board (NIB) Algernon Cargill suggested that it is time to move away from politicizing the downgrade and instead focus on improving the country’s key economic indicators in an effort to avoid another downgrade. Cargill, who was a guest speaker at a panel discussion held on Wednesday at the University of The Bahamas, said efforts to reduce the country’s debt-to-GDP ratio “are not working”.

“The short term impact is an increased cost of living and higher government debt servicing; perhaps or possibly a higher VAT rate [will be implemented] to stop the bleeding in the short term,” he said.

But Cargill noted that although improving fiscal health is important, making the country self-sufficient is an equally important goal.

“We can seek a million reasons to blame, justify or explain why we are where we are, but this solves nothing,” he said.

Cargill made it clear that the downgrade should be not politicized, if indeed finding a solution is the priority.

He alluded to the current administration and the opposition being in a constant back and forth over the building up and reduction of the nation’s fiscal deficit.

“It is for this reason that I’m asking that we have a completely apolitical view and focus on the solutions and not which government created the situation, as this simply delivers no solutions, and frankly is not a good use of time, a precious commodity,” said Cargill.

He went on to explain the impact of the downgrade on future borrowing and potential investments for the country.

“Let us not lose sight of the fact that the junk bond rating for The Bahamas does not mean we can’t borrow on the international market,” said Cargill.

“It simply means that our opportunities for more foreign direct investment and international debt are diminished, and any new debt, or rollover of existing debt on maturity will automatically carry a higher interest servicing cost, and as published, we are already at 76.3 percent debt to GDP ratio.

“Unless we do something in the short term, the higher interest servicing cost will significantly increase this number and have a rippling multiplying effect on the cost of providing services and even goods, and our cost of living.”

Cargill suggested three ways to reduce the fiscal deficit.

“We can increase government revenue, reduce government spending and expand our gross domestic product. Either one of these measures would manifest positive results. Two of them should eliminate the recurrent deficit,” he said

“Successive governments have significantly increased the national debt for whatever reason, but any business in trouble reduces its debt and does not increase it,” Cargill added.

Already, the government’s fiscal deficit for the first four months of the 2016-2017 fiscal year increased by 75.3 percent to $157.5 million.

 

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