As the government prepares to reveal the plan for the economic rebound for the country in the wake of the COVID-19 pandemic, a former minister of finance questioned how much debt the country can sustain, adding that the government should not take renegotiating debt off the table and even consider asking for debt forgiveness.
James Smith, who has also served as governor of the Central Bank of The Bahamas, said how the government intends to manage the level of borrowing it is expected to incur during this fiscal year ought to be key to any planned recovery.
The government borrowed $1.54 billion during the 2019/2020 fiscal year and has projected to incur a deficit of $1.3 billion during this fiscal year.
“The government had to run up and continues to run up a lot of debt to try and stabilize the economy and provide social assistance to many people who got hurt in this. Money is going out and it’s not coming in,” Smith told Guardian Business yesterday.
“So, whatever plan they come up with they have to address the fiscal situation from the point of view of how much debt can we reasonably expect to carry, and more importantly how do we continue to attract foreign inflows because you need foreign exchange to pay for your imports and also to service your foreign debt. So, I think those two issues ought to be central to any planned recovery.”
In addition to borrowing, the government has promised to sizably cut expenditure to offset the country’s strained fiscal position.
Smith said the government should instead seek debt forgiveness.
“A great deal of the expenditure is already baked in – salaries, leases, rents, contracts – so we say those things but realistically it never really happens. I think the government should not take off the table things like renegotiating debt,” he said.
“And even in some cases with the international debt, do like other countries, go and ask for debt forgiveness. In the past when we were doing well I think we were a part of a group where we would ourselves either forgive or be a part of making a contribution to debt forgiveness. Now the shoe is on the other foot and I think we should pursue that as well.”
Deputy Prime Minister and Minister of Finance Peter Turnquest said last week that the government will seek longer term financing toward the end of the year, which would pay off some current debt as well as provide funding for government obligations.