With government debt levels on the rise and the International Monetary Fund (IMF) projecting a debt-to-GDP (gross domestic product) ratio of more than 85 percent this fiscal year, Chief Executive Officer of Fidelity Group Gowon Bowe said The Bahamas is still not in the “danger zone”, adding that he is not panicked.
Projecting a decline in real GDP of about 16.2 percent this year and no real rebound to pre-pandemic levels until 2025, the IMF Article IV Mission in its recently released consulting statement urged the government to develop a comprehensive debt management strategy – a position Bowe echoed.
“When you don’t have clear sight then there’s always panic. Think about when you’re driving. If you close your eyes would you be concerned about ‘bucking up’? the answer is, you certainly would. If you could at least understand where you’re going then you’d have greater confidence. And what governments in The Bahamas have not done a sufficiently good job at is articulating our debt management strategy. We know that there are all types of percentages that are communicated about where danger zones are but the reality is, no matter how much debt you have the risk is whether you have the ability to service it without compromising other elements,” he told Guardian Business yesterday.
“If you look at the US government as an example, their debt-to-GDP ratio is insane in the sense that it’s a trillion dollar level of debt. It isn’t that they are fundamentally in good shape, it’s just that the economy is very popular and has great confidence and so people continue to pour money into it. The Bahamas doesn’t have that same luxury. So we have to be more deliberate in our debt management strategy by saying that one, we have a very clear plan; two, that it is well articulated for our general population and observers; and three, it allows us to measure whether we are on the right path or not.
“And so, are we in a danger zone? No, only because by my interaction with the Ministry of Finance, government, Central Bank and others – not as a layman but more as a practitioner – I understand why we are able to service the debt. So am I in a panic? No. To the average person who is just hearing the percentages, is there reason to panic? Yes there is, because there isn’t an actual document to the contrary.”
The government was supposed to have already released its Fiscal Strategy Report for the 2020/2021 fiscal year.
The IMF’s report urged the government to make operational the new debt management office within the Ministry of Finance.
Bowe said this is important because it solves the problem of transparency in the government’s fiscal motivations.
“It’s almost a cliché now, being more transparent. We have to be more communicative and we have to be more holistic in what it is we communicate,” he said.
“So I believe that there is a need for us to accelerate this debt management unit that is in the Ministry of Finance and more importantly, they need to be able to lay out forecast projections and a very clear debt management strategy, so that the average person can say, ‘okay, I can see where you are getting the money to pay the bills, even though it’s high we understand how to do so’.”
Taking note of the IMF’s suggestion to change tax policies to improve government revenue, Bowe said it’s a pity The Bahamas has to be told this from foreign bodies.
“We should actually take umbrage that we have not already crafted our destiny so that we could simply articulate it. What I mean by that is, of course an outsider coming in is going to pick the low hanging fruit. They’re going to say where it is that you can simply get more money, as opposed to the more deliberate analysis of our tax system,” he said.
Bowe has long preached that our current tax structure doesn’t generate sufficient revenue to meet expenditure demands – even before the COVID-19 economic crisis – nor does it evenly distribute among those who have the ability to pay. In addition, it doesn’t keep The Bahamas competitive in the global arena.
“If all of that is known, should we not have embarked on a more comprehensive tax reform strategy? The VAT (value-added tax) strategy, if persons would remember, was a white paper with a whole slew of various considerations including income tax, payroll tax, real property tax and the like. Unfortunately, the tax reform which we call VAT was only really to be a stopgap measure to say we were focusing on how we stop the leakages,” he said.
Bowe continued, “I look at the IMF report – and I see it as sort of a visitor who comes to your house and says to you, you really should clean that countertop – the reality is you’d tell them ‘thank you for your advice but you can go home’.
“Now if your wife is telling you to clean that countertop, then you will clean it. Why? Because you want peace in your environment. And so we should be looking at it in that same manner. The IMF can say what they like. It doesn’t matter. It’s not to be dismissive of them, it’s saying that unless we in our own country start to understand that we have to chart our own destiny, then we are going to be left beholding to those who would dictate it to us if we have to look to them for support.”
The post Bowe: Economy still not in the danger zone appeared first on The Nassau Guardian.
source https://thenassauguardian.com/bowe-economy-still-not-in-the-danger-zone/
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