Central Bank governor: Government still has significant financing needs

As the government finalizes its upcoming budget for the 2021/2022 fiscal year, Governor of The Central Bank of The Bahamas (CBOB) John Rolle said from his point of view, the government will still have significant financing needs heading into the new fiscal period, which starts on July 1.

While Rolle admitted he could not say at which level additional financing would be needed, he believes there is a large enough market to raise the needed borrowing domestically.

“We do work with the Ministry of Finance and the focus is really to make certain that we have a common understanding of the state of the economy and the impact on the deficit, and also that we have a common understanding of what different financing options mean for the economy, the financial sector foreign reserves. And from that point of view, I would say that the most important headline message for us at this point is that from a financing point of view, the government will have still significant needs. I’m not basing this on anything that I’ve seen within the preparation of the budget, it’s just the reality,” Rolle said during CBOB’s quarterly press briefing yesterday, when asked by Guardian Business if he believes there would be borrowing in the next budgetary cycle.

“The government will continue to have some important financing needs, however the government will have more wiggle room to source some of that financing inside of the economy. It will still, though, have to raise some of that financing outside to retain the balance in terms of the stimulus that financing creates for foreign exchange use. But in terms of what the magnitude of what those numbers look like, that’s not something that even if we see sight of those numbers that I can speak to at this point, other than to say that the burden on the government will still be significant in terms of having to manage the deficit.”

The government has borrowed $2.1 billion so far this fiscal year and up to the halfway point of the 2020/2021 fiscal year, the deficit was $736.1 million and the national debt stood at $9.34 billion.

Asked about his concerns on the high level of debt and deficit being taken on to help the country through the economic crisis following the COVID-19 pandemic and Hurricane Dorian, Rolle said all countries coming out of the pandemic are at varying stages to assess how they are going to repay debts they have taken on.

“I think the most important thing when we look at the debt is to embrace the fact that the government will call on the private sector to provide the resources to help repay the debt. We have to accept that reality. If we don’t accept that reality, then I think we have a strong case to push against the deficit or the amount of borrowing,” he said.

Rolle stressed, however, that the Central Bank has not advised the government to implement any fiscal rebuilding mechanisms – in the form of taxes – at this point.

“The general policy advice is that a lot of the recovery mechanisms and tools that government will need to implement, those need to be the focus post-pandemic. We need to be thinking beyond the present when we talk about rebuilding the public finances, so there is no strong advice being given to governments globally that they should be raising taxes in the middle of a pandemic to address the cost of the pandemic,” he said.

“What is more important, whether it’s taxes or expenditure reforms, is how they fit into the rebuilding that occurs afterwards. So, a lot of the plans that we have to address around rebuilding public finances will be centered on how we do that in a post-pandemic world, not in the middle of the pandemic.”

Rolle also shied away from stating whether he believes there is a high likelihood of new taxes, instead explaining the various approaches government could take together or separately to recuperate public finances over the medium term.

“You have three options, which could have relative weights: one is taxes on an existing pattern of economic activities and existing pattern of growth, that is higher taxes; or no difference in taxes, where the outcome is growth that is significantly strengthened and therefore you generate returns; and then the third element in there is expenditures of the government,” the CBOB governor said.

“So, if you look at tax policies, expenditure and growth, they need not be mutually exclusive and I think a lot of the conversation that we’re having in The Bahamas right now also focuses on how much we can revive and stimulate the economy to help, so that not all of the burden of repaying the fiscal debts is levied on the existing base of economic activity. If we try to increase the base of economic activities, that way the average payback cost is lessened for the economy.”

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