“There are some things one can only achieve by a deliberate leap in the opposite direction.” — Franz Kafka
In the lightning flash of an instant, beginning in the early months of 2020, our lives were radically transformed. The things that we took for granted slowly slipped away, like seawater in the palms of our hands, irretrievably consumed by the vastness of the ocean whose scope seems limitless.
The post-COVID-19 era will require new thinking on all levels of human intercourse. It will require a quantum paradigm shift in how we view and interact with our world and with each other.
Last week, in part one of this series, we suggested that many things that we have taken for granted have to be reviewed. Our macro and micro economic realities, our social lives, our church and school environments will all have to be reassessed in a post-COVID-19 Bahamas. We must forge a new Bahamian culture.
Therefore, this week, we would like to consider this — what will be required to reset our mindset if we are going to emerge from the COVID-19 crisis more robust and more resilient than we were before the pandemic transformed our lives?
During the past year, The Bahamas was severely shaken and brutally barraged by the dual effects of Hurricane Dorian and the COVID-19 pandemic. We are still slowly emerging from the devastation caused by Hurricane Irma, which hit the islands of Inagua, Ragged Island, Acklins and Mayaguana three years ago. Abaco and Grand Bahama continue to sluggishly recuperate from Hurricane Dorian last year. Accurate loss estimates from the COVID-19 pandemic will take a long time to fully enumerate. The toll from the pandemic will have long-term adverse implications for many aspects of Bahamian life.
Some businesses have permanently closed their doors and terminated staff because they cannot continue in the current environment. Other businesses are temporarily closed, including our tourism and financial services sectors. Both sectors will take considerable time to recover. Meanwhile, the level of individual angst has propelled personal pressures to unprecedented levels.
All our trading partners, including the United States, Canada and the United Kingdom, were severely affected. The post-COVID-19 economic outlook is gloomy at best, with many countries predicting a significant contraction of their GDP in 2020 and beyond. A global recession is currently in full motion.
Small countries like The Bahamas are particularly vulnerable to global economic downturns and natural catastrophes. The unemployment rate has rapidly risen, our national treasury is empty and our national insurance safety net has exhausted its liquidity by more than $150 million, with limited options for further tranches of substantial relief to its participants.
We cannot print money like many of the industrialized countries, and the redemptive options from monetary policy to stimulate our economy are extremely limited. Central Bank Governor John Rolle has acknowledged that any economic stimulus must be tied to expanded access to foreign exchange.
Our fiscal policy options to stimulate the economy are equally constrained. During his May 2020 budget communication, Minister of Finance K. Peter Turnquest revised the expectations for the past fiscal past year to a deficit of some $770 million, or 6.4 percent of GDP. The government has projected a deficit of $1.3 billion, or 11.6 percent of GDP, in the new fiscal year.
Government debt remains high at roughly $8 billion, and the country’s credit rating is characterized as “non-investment” category, which can severely limit its ability to raise capital in the bond market. In the face of these economic realities, the economy is expected to contract by 18 percent to 19 percent this year, and Moody’s anticipates that the debt-to-GDP ratio will approach 90 percent by June 2021.
Resetting our approach
Because of the current and projected economic outlook, we are compelled to reset our approach to public finances. Given the limited headroom for increasing taxes and additional borrowings, we must explore other viable alternatives, some of which will require a paradigm shift in our mindset. For example, we should begin to discuss an approach that other countries have successfully embraced: citizenship by investment.
Citizenship by investment
The Bahamas can raise significant capital through a citizenship by investment (CBI) program. Many countries have used this type of economic policy to boost their economies, lower debt, increase foreign currency reserves and create emergency reserves.
CBI might be a modern term, but the concept dates to the Roman Empire when citizenship could be obtained for a fee.
The first modern CBI concept emerged around the time of the handover of Hong Kong back to China in 1979. The Hong Kong elite were plunged into uncertainty. Finding alternative citizenship started to become a popular idea.
There are two things that CBI countries have in common: a small population and high debt-to-GDP ratios. Countries have implemented CBI programs because they confronted challenging financial realities. For many of these countries, CBIs provided a countermeasure to massive government budget deficits, extremely high national debt and severe public finance austerity measures.
Some of the countries that have adopted CBIs include Malta, Vanuatu, Cyprus, Jordan, Turkey and Montenegro. Caribbean countries that have implemented CBIs are St. Kitts & Nevis, Dominica, Grenada, Antigua & Barbuda and St. Lucia.
In the Caribbean, CBIs offer two options: a non-refundable contribution and a real estate purchase. The share of each option varies based on numerous criteria. In the case of Antigua & Barbuda, 80 percent of applicants in 2019 chose the non-refundable contribution option. In Grenada, the ratio has been relatively evenly balanced in the last few years. In Malta, where they can choose between renting and buying, the overwhelming majority rent property to qualify.
The programs normally establish a quota system, thereby limiting the number of CBI applications that are accepted annually. Applications include immediate family members. The quota for CBI programs is often linked to the size of the country’s population. Malta has established a yearly limit of 1,800 applications, and Montenegro’s CBI program is limited to 2,000 applications, which represent an estimated 7,200 and 8,000 new citizens for the Maltese and Montenegro CBIs, respectively. This is roughly 1.5 percent of these countries’ populations.
Some CBI countries do not impose a cap on their program, partly because most of the new citizens are predominantly non-resident in their new countries for most of the year. This should minimize fears that such a program will compromise the ethnic fabric of the country.
Many countries have established a sunset provision to phase out the CBI program when the country has achieved its financial targets from the program.
To ensure that countries naturalize applicants with impeccable credentials, the due diligence process for applicants is an essential part of their CBI programs. For The Bahamas, a robust due diligence process is of primary importance to guarantee the credibility and standard of the program and the reputation of the jurisdiction.
Malta has the most advanced due diligence process. The program has a four-tier due diligence process, which is considered the most stringent and of the highest standard in the industry.
The Bahamas is arguably the most attractive nation in comparison to other CBI countries, not only for its tax environment but for its overall quality of life and robust banking system with superlative due diligence procedures, anti-money laundering and anti-terrorist financing regulations.
Enormous economic impact
The economic impact of a CBI program can render enormous financial benefits for both the public and private sectors. On a conservative basis, when compared to CBI programs in other countries, depending upon The Bahamas’ CBI structure and assuming 1,000 applicants per annum, it is estimated that The Bahamas can generate $1 billion in non-refundable contributions for the government in three years, or $350 million annually. The government will also collect an estimated additional $93 million from application and due diligence fees. Based on these figures, we suggest that The Bahamas CBI program should have a three-year lifespan.
In addition, over those three years, it is estimated that the CBI program would have an indirect economic impact of $200 million in The Bahamas, $150 million of which will take the form of property purchases. To minimize the real estate inflation effect on more populated islands, the government could designate that property purchases are confined to less populated islands, thereby ensuring the development of those islands and expanding their economies, while containing property values on the more populated islands for upwardly mobile native Bahamians.
The CBI program could also potentially benefit Bahamians through jobs that would be created by this program and through educational, training and retraining programs that can be specifically established using the funds that are generated by this program.
There are also benefits for private-sector professionals. Lawyers, bankers, realtors and accountants will benefit from fees associated with CBI applications. While professional fees and commissions will vary, it is estimated that between $25,000 to $45,000 could be earned from financial services providers who offer services to eligible applicants.
The COVID-19 pandemic has significantly and inexorably altered our lives. Public and private sector stakeholders must reset their mindset to adjust and assimilate to the realities of the new normal that will emerge from this crisis, realities we must accept and address to survive.
It is vitally important to begin the public dialogue regarding a Bahamian CBI program. As Franz Kafka observed, “There are some things one can only achieve by a deliberate leap in the opposite direction.”
We should expand our minds and challenge ourselves to consider options that will diversify our offerings to a globalized world that is consistently shrinking and constantly demanding novel alternatives. It is these new ways of looking at our very survival in this new world that will offer practicable possibilities to reshape and redefine a new Bahamas.
• Philip C. Galanis is the managing partner of HLB Galanis and Co., Chartered Accountants, Forensic & Litigation Support Services. He served 15 years in Parliament. Please send your comments to firstname.lastname@example.org.