National Review

What lies ahead

Dire fiscal realities  could make many PLP pledges unachievable

Now that the Progressive Liberal Party (PLP) has formed the government of The Bahamas, how realistic is it to expect that the Davis administration will be able to complete even half of what it committed to doing in its “Our Blueprint for Change” – the document of promises the PLP released ahead of the September 16 general election?

Many who voted for Philip Brave Davis and his party did so not because they bought into the plans presented, but because Davis and the PLP represented the alternative to Dr. Hubert Minnis and his Free National Movement (FNM).

Many Bahamians could not bear the thought of another term of arrogant, unaccountable and disrespectful governance.

They could no longer stomach the spitefulness and botched management of the people’s business by the Minnis administration.

It is good that we can finally move on from Minnis, who failed to make an adequate case for re-election and instead repeatedly portrayed Davis as a corrupt individual who would allow shady, unscrupulous characters to take hold of the public purse and drive us fully over the fiscal cliff.

But Minnis’ corruption narrative bogeyman only turned the spotlight on his refusal to address fishy and questionable matters in his own administration. 

Those warnings from the now former prime minister showed an increasingly desperate and delusional man leading an increasingly desperate and delusional team.

And so, many Bahamians are relieved at the change in government.

Notwithstanding Davis having played a significant role in the Christie administration that was kicked out of office in 2017, many Bahamians are willing to give the new government an opportunity to prove what kind of government it will be.

The new administration deserves that much.

Nine Cabinet ministers were sworn in during a ceremony at Baha Mar on Monday. From left, Minister of Works and Utilities Alfred Sears; Minister of Foreign Affairs and Public Service Fred Mitchell; Attorney General and Minister of Legal Affairs Ryan Pinder; Minister of Education, Technical and Vocational Training Glenys Hanna-Martin; Deputy Prime Minister Chester Cooper; Prime Minister Philip Brave Davis; Minister of Health and Wellness Dr. Michael Darville; Minister of Economic Affairs Michael Halkitis; Minister of Agriculture, Marine Resources and Family Island Affairs Clay Sweeting; Minister of National Security Wayne Munroe and Minister of State for Legal Affairs Jomo Campbell. TORRELL GLINTON

But Davis and his team ought to recognize the window of opportunity to prove themselves is short.

They must work every day to hold the public’s trust, because past administrations have seen that governments can get beyond the point of no return with the public very early in the term. 

This happened with the Christie administration less than a year in with the gaming referendum, and with the Minnis administration one year in when it raised value-added tax (VAT). 

Both Perry Christie and Dr. Hubert Minnis could attest to the fact that it is even more difficult to govern in the absence of public buy-in and trust.

Davis and his ministers must not foolishly assume a mandate gives them license to behave and govern however they want — high-handed, arrogant, shady and non-communicative. That has been the death knell of previous administrations.

PLP Deputy Chester Cooper rightly observed that their predecessors had an even greater majority yet were rejected by the Bahamian people.

In order for any party that governs to be able to fully execute their platforms and get second terms, they must take heed and govern differently so that even if they lose, we still have a close Parliament whereby the business of the people can get done.

FISCAL REALITIES

As it seeks to govern with as much currency as it can hold onto in its goodwill bank, the Davis administration will also have to make some tough decisions; it will have to be honest with Bahamians about the true state of our fiscal affairs, and it will have to acknowledge that there is just a lot that it will not be able to do considering our dire financial circumstances.

As if to underscore the depth of the challenges and crises that exist, on the same day the new prime minister was sworn in, sovereign credit ratings agency Moody’s downgraded The Bahamas’ credit rating with a negative outlook.

Moody’s pointed to the country’s severe economic contraction from the coronavirus pandemic shock for contributing to a significant increase in this nation’s debt and interest burdens.

The new administration meets government debt of $10 billion (as of June 30), which is 83.6 percent of GDP. This compares to 66 percent of GDP at the end of June 2020.

For fiscal year 2020/2021, the Minnis administration recorded gross borrowings at $3 billion.

State-owned enterprises continued to be an albatross around the necks of taxpayers.

In 2020/2021 (up to May 2021), the government provided $34.5 million to Bahamasair; $11.2 million to Lucayan Renewal Holdings; $2.6 million to Water and Sewerage Corporation; $4.1 million to the Airport Authority and $4.6 million to Nassau Flight Services.

A big-ticket promise of the PLP is to decrease value-added tax from 12 percent to 10 percent.

VAT projected for fiscal year 2022/2023 is $993.5 million. Based on that assumption, the planned cut would equate to $162 million.

That would have to be paid for by an increase in revenue elsewhere or by a corresponding cut in spending.

On Saturday, Prime Minister Davis told reporters that an announcement on the way forward with VAT will be made “in the coming weeks”.

Cooper said previously the plan to decrease VAT could increase government revenue by $200 million, contending that the economic principles suggest that lowering costs will increase consumer spending.

But fulfilling this promise out the gate could prove problematic for the government that will for sure resort to continued borrowing to meet obligations.

Writing in The Nassau Guardian just yesterday, accounting and financial expert Hubert Edwards pointedly noted that the loss from the VAT cut (which he estimated would come in at $200 million) was always going to be challenging but must take on a very different view now in light of the downgrade.

“This development is significant in that it has direct implications for a largely unfinanced budget,” Edwards wrote.

In reducing VAT from 12 to 10 percent, the government would certainly be trying to spur economic activity which might have been fine as one of the financial tools it uses to encourage domestic activity, along with a restructuring of the long-term debt of the country.

But the downgrade now throws into question the country’s ability to restructure that debt at much lower terms.

As Edwards observed, the downgrade sets the stage for additional costs, an increased deficit and greater difficulties in refinancing, adding, “This is not a good development for the country and the new administration.”

The prime minister has not yet named a minister of finance. There is an expectation that he will take on that portfolio.

He said on Monday that the new minister of economic affairs, Michael Halkitis, will play an important role in stabilizing the country’s finances.

The new administration has very little headroom. As is the nature of politics, after the new Parliament convenes on October 6, it will likely spend a great deal of time highlighting what it sees as FNM administration mismanagement, and seek to temper the high expectations of the Bahamian people.

It’s not unlike the strategy employed by the Minnis administration upon assuming office in 2017.

FNM ministers spent a great deal of time during the first budget debate, which took place mere weeks after the FNM was elected, pointing to what it termed as PLP abuse, malfeasance and misfeasance.

It would not surprise us to hear the new government report that the state of government finances is even worse than it thought prior to taking the reins of government.

The PLP in its economic plan released earlier this year committed to “an immediate, full assessment” of the true state of the country’s finances.

It also pledged to manage the national debt by pursuing refinancing at the earliest opportunity, engaging the private sector and international institutions.

Additionally, it said it will transform the tax system to make it more equitable and progressive and to encourage national growth and prosperity.

It also said it will make government contracts open and transparent, and stop and investigate special interest deals and transactions.

PROMISES

The fiscal realities are no doubt front and center of the new government’s considerations as it settles in.

On the campaign trail, Davis signed a memorandum of understanding with the umbrella unions.

The unions are unlikely to be patient for too long in their wait for the new prime minister to begin delivering on what he agreed to.

This includes the “enactment of a livable wage”, the full implementation of National Health Insurance, the establishment of a National Redundancy Fund Act, and the PLP administration working to ensure industrial agreements are concluded.

The Minnis administration’s term ended with significant labor unrest.

The public service union, the Water and Sewerage unions, healthcare unions and other unions all have significant issues that they are demanding resolution on.

In its blueprint, the PLP promises to address arrears with government vendors and salary arrears owed to public servants; it pledges “additional VAT relief”; it promises to “work with banks to keep Bahamians in their homes” and it says it will increase funding to social services for rental assistance.

The PLP also committed to a review of minimum wage “to phase in a livable wage”. It says it will recommend to the National Tripartite Council that it moves toward a minimum wage of $250 per week.

The PLP has also pledged to build a new hospital in New Providence, through public private partnership, and says it will build a new hospital in Grand Bahama as well.

It says it will “work to ensure that our natural resources benefit our people” by renegotiating contracts of mining of natural resources.

The PLP also pledged to ensure reliable sources of affordable, sustainable energy and move to reduce the reliance on fossil fuels.

We do not have the space to fully examine the many commitments the PLP made. Many of those commitments are of a financial nature, which will undoubtedly prove challenging for the new administration as it works to stabilize finances and grow the national economy.

We do not believe the new prime minister and his team are under any illusion regarding the challenges that lie ahead.

The soundness of their plan, the courage of their convictions and the ingenuity of their vision are about to be tested in significant ways.

We wait now to see if all the talk will materialize into positive action for the benefit of the Bahamian people.

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Candia Dames

Candia Dames is the executive editor of The Nassau Guardian.

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