Should we embrace the IMF?

Lauded Trinidadian economist Marla Dukharan has examined the fiscal affairs of the entire Caribbean for many years and she is well versed with The Bahamas’ many challenges.

It stands to reason there are few people outside The Bahamas who know The Bahamas’ economic situation better than she does.

However, there are few people than Dukharan who have so loudly predicted that The Bahamas was headed for a balance of payments crisis that would lead to a structured International Monetary Fund (IMF) program.

Her reasoning has been sound: The Bahamas, like many other Caribbean countries, is susceptible to climate and global shocks; our debt is dangerously close to eclipsing our GDP; we consistently run budget deficits and our sovereign credit rating is non-investment grade.

Other Caribbean countries who found themselves in similar situations, like Barbados and Jamaica, have had to turn to the IMF to meet their obligations.

But thus far, Dukharan has been wrong.

We have been creative enough and fortunate enough to avoid an IMF program.

Now, Dukharan suggests instead of fearing an IMF program, we embrace it.

“The Bahamas needs a significant reform agenda,” said Dukharan while speaking at Tuesday’s RF Economic Outlook.

“It is my humble opinion that if The Bahamas were to call on the IMF, the World Bank, the IDB, the CDB and other development partners, engage in a debt restructure exercise … because remember, you’re facing a double whammy that nobody else has had to deal with in this region, with Dorian and with the pandemic.

“Engage in a meaningful debt restructure exercise and embark on a sweeping socioeconomic green reform agenda. And that way, The Bahamas, I think, is well poised to become the Caribbean’s next success story, just as Jamaica has done.”

On the one hand, while Jamaica has indeed had an impressive turnaround, The Bahamas is in nowhere near the position Jamaica found itself when it entered an IMF program – after many prior years of IMF help – a decade ago, also turning to the World Bank and the IDB for aid.

Jamaica had a debt-to-GDP ratio of nearly 150 percent and saw its debt service costs climb far beyond what ours ever has as a percentage of its GDP.

Its domestic debt profile was also in considerably more trouble than ours, and even an ingenious IMF-supported debt exchange could not rescue Jamaica from a structured program.

Jamaica’s broader macroeconomic turnaround has indeed been a success, but many Jamaicans still complain they do not feel that on the ground.

And, frankly, Jamaica had little choice.

We do – for the moment.

On the other hand, Dukharan makes a salient point in that if we engage in a structured program, we are much more likely to accomplish sweeping reform.

And we had no hesitation in turning to the IDB, the IMF, the World Bank and the Caribbean Development Bank when confronted by the COVID-19 pandemic.

But the IMF carries with it a stigma, one that Dukharan said we should not fear.

“There is this misconception because politicians all over the region love to demonize the IMF and say, ‘Well, if the IMF comes in, they’re going to make us lay off half of the public sector workforce, they’re going to make us cut wages, they’re going to make us do X, Y, and Z,’” she said.

“And these are all draconian measures that we don’t want to do because it’s going to impoverish our people.

“Actually, that’s not how it works. You know, they tell you what are the targets you need to reach for your fiscal balance, etc. And you need to figure out what are the policy measures that work best for you.”

However, it is true that Jamaica increased income tax – which we do not yet have – on “high earners”, raised other taxes, froze public sector hiring and raises, restructured its state non-contributory pension plan, and privatized ports and several state-owned enterprises.

While those are harsh measures, they are measures that could help our fiscal affairs tremendously.

In our opinion, an IMF program would provide a political shield for our leaders who heap largess on the public to garner political influence and strain the public purse and state-owned enterprises finding work for supporters who are often unqualified.

We do not need the IMF to act.

But perhaps running into their arms may give us the courage to do what needs to be done.

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