Rick Lowe

I know, but I couldn't resist publishing this interview here.

Sure glad I'm not in the politico's shoes.

Enjoy.

'Little confidence' in ability to arrest $3.8b national debt

Published in The Tribune on: Thursday, January 07, 2010 here…

By NEIL HARTNELL
Tribune Business Editor

A leading fiscal hawk yesterday said he did not have "much confidence" in the Government's ability to get the nation's finances back on the right track, given that it had achieved "one year of no deficit in 26-27 years of independence" and was now faced with a national debt totalling almost $3.8 billion.

Rick Lowe, an executive with the Nassau Institute economic think-tank, said that with the national debt approaching at least $3.8 billion, "future generations of Bahamians will have a burden that no generation has had to carry before".

Criticising both FNM and PLP governments for fiscal profligacy that has endured over successive administrations, Mr Lowe said senior Bahamian politicians and civil servants had shown no appetite for tackling what he identified as the key factor behind recurrent fiscal deficits – ever-increasing spending and the growing size of government. "I think both parties are culpable. They've both borrowed and spent and printed money, and run deficits, for far too long," Mr Lowe told Tribune Business yesterday.

Of the Standard & Poor's (S&P) decision to downgrade the Bahamas' long-term sovereign debt to 'BBB+', he added: "It's only the chickens coming home to roost. Eventually, D-Day comes."

Data from the Central Bank of the Bahamas' latest statistical digest showed that at the 2009 third quarter end on September 30, 2009, this nation's national debt stood at $3.675 billion. Some $3.236 billion of that was directly owed to creditors by the Bahamian government, along with a further $438.486 million worth of borrowings it had guaranteed on behalf of public sector corporations and agencies.

Taking the Bahamas' $7.564 billion GDP for 2008, and assuming the economy contracted by 4.5 per cent in 2009, gives a $7.224 billion GDP for the latter year. Using this number gives the Bahamas a debt-to-GDP ratio of 50.9 per cent as at September 30, 2009.

And this ratio is likely to have worsened, given that these figures do not include the net $100 million increase in the Bahamas' national debt that resulted from its subsequent $300 million bond issue. That took the national debt to just under $3.8 billion, at $3.775 billion, and would make for a 52.3 per cent debt-to-GDP ratio.

Mr Lowe said that assuming a national debt of $3.75 billion, and 350,000 Bahamas residents, the debt per person was around $11,000-$12,000. And if only 150,0000 Bahamians were working, it averaged out to $25,000 per working person.

Mr Lowe said he "tends to agree" with PLP Senator Jerome Fitzgerald, who told Tribune Business pre-Christmas that the S&P downgrade was "the first step on a slippery slope" that, if not corrected, could ultimately lead to the Bahamian dollar's devaluation from its one:one peg to the US dollar.

Their views contrasted with the Government position set out by Zhivargo Laing, minister of state for finance, who on Tuesday attacked Mr Fitzgerald for "reckless nonsense" over his comments, arguing that there was "no such threat to the value of the Bahamian dollar".

Mr Laing said the national debt-to-GDP ratio was 48 per cent, just below Tribune Business's calculations. It is not clear what data he was using, but the Government has exceeded the 40 per cent debt servicing ratio that, for example, the Central Bank has recommended commercial banks use when assessing a potential borrower's creditworthiness.

"It's certainly a very serious situation, but it's a result of many years of both PLP and FNM failed fiscal policies," Mr Lowe told Tribune Business.

"You can't keep expanding government and not expect it to cost you. Eventually, you'll have to either increase taxes, the dollar will have to be devalued, or both. That's not the intent of either political party, but that's what going to happen if we keep going."

Arguing that successive governments' fiscal policies had been driven largely by short-term political considerations, as opposed to long-term needs, for the past 20 years, Mr Lowe added: "That's what keeps leading us further and further down this path.

"I think devaluation is coming, and obviously higher taxes. There's no doubt in my mind. We're not going to stop spending. I think we've had one year of no deficit in 36-37 years of independence.

"As far as I'm concerned, future generations of Bahamians will have a burden that no generation has had to carry before, and they can thank the politicians of the last 30 years for that. Economic growth will return, but I don't think it will return to the levels we saw, so it's going to be a long, slow grind to get the economic system back on track."

And Mr Lowe added: "They've [the Government] shown they cannot control spending, and that's a track record since independence. I don't have much confidence that they can [reverse course].

"The only way to get out of this is to shrink the size of government. Government is responsible for too much of our economy. But for some reason, our senior civil servants and politicians are only willing to continue with the status quo. They are not willing to look at it through a different lense."

As a result of the worsening public finances and debt metrics, Mr Lowe said the Government was not going to have "the ease of borrowing" that it enjoyed in the past.

The Central Bank data showed that since year-end 2007, the Bahamas' national debt increased by more than $600 million over seven quarters, having started out at $3.07 million.

Mr Fitzgerald, speaking with Tribune Business yesterday, said that when the former Christie administration demitted office in May 2007, the national debt was $2.889 billion. If this is correct, it would indicate that the Ingraham government has been forced to borrow almost $900 million in two years, something that equates with the $872 million figure quoted by Mr Laing.

"It's obvious that by the time we get to the next Budget in May, the national debt will be up to $4 billion," Mr Fitzgerald said.

He also questioned the size of the Government's overdraft with the Royal Bank of Canada, querying what was happening "if the Government continues to run its overdraft to the max and not include it as part of the national debt".

Mr Fitzgerald again reiterated that the Bahamas' foreign currency debt now stood at $1.1 billion, more than 25 per cent of the national debt, and argued that the Christie administration had to borrow $125 million when it took office to clear a $100 million overdraft left by the first Ingraham administration.

However, that $125 million credit facility had been put in place, but not drawn down by, the then-FNM government.