The government’s first hurdle in its quest to shore up the country’s finances, in the wake of the coronavirus (COVID-19) pandemic and one year after Hurricane Dorian, will not be how much it can borrow, but the ease at which it can borrow, given the negative outlooks by rating agencies and the looming possibility of future downgrades as the country hovers just above junk bond status, former Minister of Finance and former Central Bank Governor James Smith said yesterday.
Smith, who was part of an Organization for Responsible Governance (ORG) panel discussion, said the government is staring down the “most significant increase in borrowing” the country has seen, adding that there is “not a happy outlook for The Bahamas in the short term”.
As the government prepares to present the 2020/2021 budget, the country is anticipating a plan to recoup revenue lost during the continuing COVID-19 shutdown of businesses and complete shutdown of tourism.
In March, global credit rating agency Standard and Poor’s (S&P) maintained The Bahamas’ BB+ sovereign credit rating, but changed its outlook from stable to negative. Last year, credit rating agency Moody’s changed The Bahamas’ outlook to stable and affirmed its Baa3 rating. Those ratings affect a country’s ability to borrow and the rate at which it pays back its debt.
Smith said with raising taxes, reducing expenditure and selling assets the only ways of addressing revenue shortfalls, the government will have to carry out a delicate balancing act given that it will not be able to “borrow beyond a certain limit”.
“We run the risk of an implosion that we have never seen,” said Smith.
“All citizens will have to focus on the larger issue… mitigate the impending doom.”
Member of the Fiscal Responsibility Council Gowon Bowe, who was also an ORG panelist, said the government will need to focus its expenditure on projects that will give it the best return on investment.
“This is the time we’re going to have to be very focused on the value-add to ensure every dollar being spent is giving a benefit,” said Bowe.
He added that there will be no “money tree” for the government to pull from under these circumstances.
Both Smith and Bowe agreed that the government should explore every option available to raise revenue, including tax structure reform, public sector fat-trimming and asset selling.
Bowe added that private citizens, like pensioners who are also being paid as government consultants, should consider relinquishing one of those for the sake of reducing government expenditure.
“It is unwise of government to say there will not be any type of movement in the civil service,” said Bowe.
Both men also agreed that the private sector should be a significant participant in the rebuilding of the country’s economy, while knocking the dust off of the country’s National Development Plan.