While an International Monetary Fund (IMF) debt restructuring program may make it easier for the government to make the tough decisions it needs to, it may not be as helpful in the long term, CFAL President Anthony Ferguson said yesterday.
He was asked about recently reported comments by Economist Marla Dukharan that The Bahamas would be one of the next regional nations to default on its sovereign debt.
“Personally, I would prefer us not to go through an IMF program because, quite frankly, for the most part, going through those programs are not helpful in the long term for any country,” he said when asked by Guardian Business if joining such a program would be all that bad for The Bahamas.
“However, what it would do for us is it would force us to make some of the real tough choices that politically is very difficult to do, but you can always blame it on the IMF causing us to do it.”
At the close of the fiscal year 2020/2021, The Bahamas’ debt had surpassed $10 billion – the highest in its history, and the fiscal deficit was $1.3 billion following three years of consistent borrowing in excess of $3 billion.
In its recent downgrade of The Bahamas to Ba3, sovereign ratings agency Moody’s noted that the sharp rise in debt over the past few years has resulted in a need for fast fiscal consolidation, without which would result in higher borrowing requirements and exacerbate funding risks.
“The fact of the matter is we mismanaged our borrowing in the last several years, where we continued to focus on borrowing foreign earning currency, to say we had a large reserve, where we should have been borrowing locally, where the need for an IMF program is not important,” Ferguson said of the country’s borrowing habits.
“… You can always restructure your debt more easily locally than you can from an international perspective.
“So, it is going to give us an opportunity, even from a restructuring potentially, or in terms even looking at how we rate international money.
“There are some new opportunities that I see out there in terms of using the blue and green initiative as a credit toward borrowing. So, there are some opportunities out there. It’s not as bad as people would think but it does require a skillset and the political will to make some of those decisions.”
Moody’s also said this nation would benefit significantly from fiscal consolidation driven by the removal of COVID-related spending on unemployment benefits and other related items to reduce its debt burden.
Ferguson said the government should start right away with burdensome state-owned enterprises.
“I think I would make some of those tough decisions right away,” he said.
“For instance, some of the state-owned enterprises over the past year or so have gotten support of over $100 million. It’s not necessary.
“Some of them are really not necessary and sometimes you do have to make those tough decisions and restructure those state-owned enterprises. And the way how you mitigate some of those tough decisions is you then provide early retirement programs for some of those nearing retirement.
“So, you don’t necessarily get rid of people but they just go on an earlier retirement than usual and you reduce your costs there. And then you have to make them accountable in terms of giving them key performance indicators and if these indicators are not met, then you have to make the tough decisions. But you cannot continue to support enterprises that continue to underperform and continue to be a drag on the rest of The Bahamas. It’s just not something that we should continue to do because quite frankly, I don’t think we can continue to do it.”
In June, following the 2020/2021 budget presentation, Dukharan said the current track of the country’s fiscal position is unsustainable and that The Bahamas needs to conduct an orderly debt profiling exercise.
She pointed out that the $512 million budgeted for debt servicing costs this fiscal year is the highest level of debt servicing costs in the country’s history, accounting for 18 percent of budgeted recurrent expenditure.
The post CFAL head: IMF debt program may not be helpful in the long term appeared first on The Nassau Guardian.
source https://thenassauguardian.com/cfal-head-imf-debt-program-may-not-be-helpful-in-the-long-term/
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