Inflation wreaking havoc

As the Davis administration finalizes its budget for the 2022/2023 fiscal year, which will be presented to Parliament later this month, it is undoubtedly walking a fine line between formulating policies intended to shore up revenues, while seeking to strengthen the country’s social safety net in the face of rising prices and stagnant wages.

This week, the government advised the public that it has approved price increases on several breadbasket items. While Minister of Economic Affairs Michael Halkitis said the increases will only be by a few cents, it was the latest chilling indication that the situation is likely to get worse before it improves.

We worry for the thousands of Bahamians – low-income single mothers, the unemployed, the elderly and the physically and mentally challenged – who are being most affected by the crisis.

We worry for the many children whose households are becoming less and less an environment of protection and provision, and increasingly one of vulnerability and hopelessness.

Even as Halkitis was explaining that the government had very limited options to address the situation, his colleague, Social Services Minister Obie Wilchcombe was reporting to the country that things are actually improving to the point where a significant reduction has been made in the number of Bahamians seeking food assistance from the Department of Social Services.

Wilchcombe said the department provided for 10,386 people in April compared to 23,716 the month before.

“That’s because some people [came] off the program. Some [came] off because they are now working and no longer in need of assistance,” he claimed.

While he provided the numbers to support his statement that fewer people are being assisted, we know no one who bought the explanation Wilchcombe gave.

Every week, and sometimes more frequently, many Bahamians, and not just poor Bahamians, are aghast at their grocery bills. Their purchasing power has lowered in recent months. Many who were able to save some money now have less, if anything to save. They are becoming increasingly vulnerable.

In its “Monthly Economic and Financial Developments” report for March, released on May 2, the Central Bank of The Bahamas stated that inflation is projected to experience upward pressures as a result of the rise in international oil prices, higher costs for other imported goods and supply chain shortages, associated with geopolitical tensions in Eastern Europe.

While it said the domestic economy is projected to maintain its growth momentum in 2022, supported by robust, ongoing recovery in both stopover and cruise activities, the bank said the rise in fuel costs could erode the travel industry’s competitiveness, while counter-inflation policies could constrain the travel spending capacity of key source market consumers.

The Brookings Institution, a nonprofit public policy organization based in Washington, DC, noted that surging economic activity, supply-chain disruptions, and soaring commodity prices combined in 2021 to push global inflation to its highest level since 2008.

Brookings said the lowest-income households in emerging and developing economies spend roughly 50 percent of their income on food. For the highest-income households, the amount is just 20 percent.

Amidst these challenging circumstances, the Davis administration must decide which options to go with from its limited tool box to provide some measure of relief, even if limited, to the most impacted Bahamians.

Making these decisions won’t be easy as more and more of the country’s revenue must go toward debt servicing, and there is very little flexibility with recurring expenses.

On the point of what policymakers can do to help the vulnerable cope, Brookings observed that governments have been turning to subsidies to dampen the impact on households.

It noted that in some cases, subsidies can be an effective transitional tool to ameliorate the impact of shocks. But it added they tend to be left in place for too long, leading invariably to adverse effects.

Subsidies can quickly detract from spending in infrastructure, health, and education and energy subsidies tend to go to wealthier households more than poorer households and encourage excess consumption, the organization stated.

“Policymakers should instead use social welfare policies to protect the poorest from rising prices,” Brookings added. “These policies could include targeted safety nets such as cash transfers, food, and in-kind transfers, school feeding programs, and public works programs.”

As the government decides on what programs would be most effective for the groups most in need, more Bahamians will have no other choice than to tighten their belts as they seek to ride out this current crisis.

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