The Bahamas’ real gross domestic product (GDP) contracted by an estimated 14.5 percent ($1.64 billion) last year, according to the Department of Statistics, with the International Monetary Fund (IMF) projecting modest GDP growth of two percent for the country this year.
Citing supply chain challenges and ongoing pandemic concerns, the IMF slightly downgraded its global GDP growth forecast for 2021, maintaining its projection of 4.9 percent global GDP growth for 2022.
The fund has also cut by one percentage point its growth estimate for the United States – indicators that prompt questions of whether The Bahamas can meet or significantly exceed a projected two percent growth whose outturn would continue to leave government hard pressed to make inroads into the country’s debt crisis and stubbornly high unemployment.
Minimal economic growth will also make it difficult for the new administration to, at least in the short term, make good on key campaign pledges.
With soaring consumer prices and the IMF signaling increased inflation risks should supply chain disruptions triggered by the pandemic persist, all eyes are on how the administration will balance and time the imperative of meeting its financial commitments with bringing promised financial relief to Bahamians.
Prime Minister and Minister of Finance Philip Brave Davis said this week that his administration is looking at recasting the 2021/2022 fiscal budget, so as to enable the government to meet its commitments for the remaining nine months of the financial year.
Davis advised, “We are now looking at recasting the budget because what we are finding is that the budget was not truly a reflection of what the state of affairs were but rather just a wish list to get over an election.”
Notwithstanding the ongoing pandemic, the current budget passed by the Minnis administration includes a real GDP growth projection of 3.9 percent (the highest GDP growth recorded since 2000) – and projected revenue that exceeded by close to $182 million, the Minnis administrations’ pre-Dorian revenue projection in 2018.
Such projections represented a wish list indeed, but Davis’ administration will be tasked with posting projected revenue growth for the fiscal year that it deems more in line with reality, not to mention laying out the framework for how such growth will be attained.
The prime minister pointed to government’s value-added tax (VAT) bill which proposes to decrease VAT to 10 percent, as what will likely be top on its legislative agenda when the House meets on October 27.
On the campaign trail, the Progressive Liberal Party (PLP) posited that the 10 percent VAT decrease would spur economic growth while providing much needed relief to burdened tax-payers.
While in opposition, the PLP called on the Minnis administration to make public its forecast models which supported its contention that increasing VAT by 60 percent to a 12 percent rate, would not result in economic contraction and would result in a linear 60 percent increase in VAT revenue in the first year, growing year to year thereafter.
When making his case for the economic and fiscal benefit of a proposed VAT decrease at this time, Davis should also provide Parliament and the nation with his government’s models that would support its position – a position that must also demonstrate how the loss in VAT revenue due to the rate change, will be recouped.
The government’s ambitious Speech from the Throne is reminiscent of the oft-quoted admonition by American architect Daniel Burnham, “make no little plans; they have no magic to stir men’s blood.”
Having described the country’s economic affairs as “dismal” soon after taking office, Davis will find no easy task in fulfilling big-ticket items in the near term – a delay which will try the already strained patience of the electorate.
But providing timelines for core legislative pledges that are not revenue-intensive would demonstrate to the Bahamian people that appreciable thought is being put into pursuing the administration’s “Blueprint for Change”.
Following through on the Davis administration’s big plans will not only require big economic growth, but growth in the country’s level of public trust – which comes about in part when government’s plans are clearly articulated, and the paths to those plans are both discernible and doable.