Komolafe: Natural disaster shocks will challenge Fiscal Responsibility Bill
The government’s goals, as stated in the proposed Fiscal Responsibility Bill, will be challenged without a robust plan to address shocks to the economy as a result of natural disasters, the chairman of the Bahamas Insurance Association (BIA) told Guardian Business yesterday.
Emmanuel Komolafe said government needs a “comprehensive plan” in place that can “stand the test of time”.
On Monday the government released the bill on the Ministry of Finance’s website. The bill is designed to set policy that constrains government’s fiscal processes and keeps the country on a medium-term trajectory toward economic growth, while creating a culture of transparency and funds.
When implemented, the bill will require government to reduce its debt to gross domestic product (GDP) ratio to 50 percent of GDP over time.
Besides lowering the debt to GDP level, the law, when implemented, will require the government to lower the fiscal deficit of 5.8 percent of GDP to no more than 0.5 percent within three years.
Government will also be required to keep its comparative year-on-year current expenditure at or below three percent.
Komolafe suggested all will be for naught if government does not find a way to guard against the expenses that occur following a devastating natural disaster such as a hurricane.
Estimated damage totals for Hurricanes Joaquin and Matthew were $105 million and $580 million respectively.
“This plan must be holistic and address the short, medium and long term,” said Komolafe.
“The discourse on a robust national disaster risk management framework has been ongoing for quite some time. As the 2018 hurricane season is fast approaching, the recent commentary by the IMF (International Monetary Fun) in its Article IV is timely and worthy of serious consideration by the government.
“The IMF has highlighted a point that has been made on numerous occasions by several local commentators within and outside the insurance industry. On its part, the BIA has been advocating for a more comprehensive and broad-based approach to the management of disaster risk in The Bahamas for several years. Hurricanes are arguably the biggest risk to the achievement of national development goals and the fiscal consolidation plan in any given year.”
Komolafe said when the IMF recommended a savings fund between two and four percent of gross domestic product, the BIA was looking at the following figures: two percent of the 2016 GDP ($11,262 million) as stated by the IMF is approximately $225 million; four percent of the 2016 GDP ($11,262 million) as stated by the IMF is approximately $450 million; and 0.5 percent of GDP annual inflows in normal years amount to approximately $56 million.
According to Komolafe, as reported in the annual report of the Insurance Commission of The Bahamas, insurance premium taxes for 2016 amounted to about $22 million.
“The suggestion had been made that, if the government decides to keep the three percent premium tax on insurance, the taxes generated should be set aside for a disaster recovery or savings fund,” he said.
Government has been talking to the CCRIF SPC (formerly Caribbean Catastrophic Risk Insurance Facility) in an attempt to secure an agreement with the body, to allow The Bahamas to purchase parametric insurance to cover damage from hurricanes by island zone (southern, central and northern Bahamas) instead of as one jurisdiction.
Parametric insurance will mean lower payment thresholds in the less dense areas of The Bahamas, where damage costs will likely be minimal, compared to highly populated New Providence. He said early discussions with the CCRIF SPC have been positive.
Komolafe said a properly structured CCRIF policy should provide The Bahamas with the requisite financial protection and would be a major component of a comprehensive plan.
He added that an Inter-American Development Bank (IDB) contingent loan for natural disasters was welcomed, but he lamented that “it is still a loan or line of credit, and our objective should be to develop a plan and build resilience in order to reduce the need to borrow in the medium- to long-term”. responsibility with regard to public