Noted Caribbean economist Marla Dukharan doubled down Thursday on her prediction that The Bahamas’ next crisis will be a balance of payments one, as the country’s latest credit rating downgrade, she said, will make it even more difficult for The Bahamas to borrow money to pay its debts, and more difficult for it to hold on to existing creditors.
Dukharan made these latest remarks on the state of The Bahamas’ economy while on the Guardian Radio show “The Essentials” with Hubert Edwards.
She has made predictions that The Bahamas could default on its debt repayment obligations since 2020, and has held fast to the belief that the country will soon be part of a fiscal right-sizing program through the International Monetary Fund (IMF).
Dukharan stopped short of directly suggesting government approach the IMF for help in restructuring the country’s current debt crisis, though she said it could be a good fiscal strategy.
She predicts, however, that the country could soon be under a program nevertheless, due to the country’s dire economic state of affairs and its sluggish growth.
The Central Bank of The Bahamas revealed last week that the country’s debt-to-GDP (gross domestic product) ratio has reached the destabilizing 100.4 percent mark.
“I think The Bahamas is the next most likely to succumb to a balance of payments crisis,” Dukharan said.
“The Bahamas is experiencing its two worst crises in history back to back.”
However, former Acting Financial Secretary Marlon Johnson and Governor of the Central Bank of The Bahamas John Rolle have contended that government continues to have the fiscal headroom to manage its debts.
That is, they explained, the country continues to have taxation options available to pull more revenue from the Bahamian people.
The new Progressive Liberal Party government, which will continue to be in the infancy stages of its governance into early next year, has talked about tax reform and tax cuts, but no tax hikes as yet.
It has also inherited a largely unfunded 2021/2022 budget.
Dukharan said raising foreign currency after the most recent downgrade from Moody’s is likely to prove difficult, and she suggested the assistance of an IMF intervention could allow the country to regain creditor trust.
She said while she understands that new governance means new hopes to right-size the economy, successive governments have yet to be able to pull it off.
“It’s possible to restructure debt without an IMF program,” said Dukharan.
“[But] if you couldn’t implement reforms in the past to set your country on the right path, why would you be able to do it now? What makes the difference? You have the same politicians, the same public sector… what makes the difference?
“When you have downgrades as The Bahamas has had, there is a lot to be said for credibility, and basically investors having faith in you. An investor that knows there is an IMF program behind it, where there is technical assistance, financial assistance, a reform agenda, that means this (default) will not happen again.
“… In absence of an IMF program where they are not quite sure that the government will get it right, and if the government of the day does not get it right in terms of a reform agenda, it means that at some point you will actually default, and you will have to go to the IMF whether you do it as a proactive strategy and you do an orderly restructure and you implement reforms, or you wait until you have not a cent left.
“There is a big difference between what that looks like, those two options, and we don’t want to wait until there is absolutely nothing left. So, I would say to you that there is a lot more credibility and transparency as well when there is a fund-supported program versus when they go it alone.”
She explained that in the short term, The Bahamas has to reprofile its sovereign debt through the write-down of debt principles or extension of maturity tenors and interest rate renegotiations.
She said the new government must continue to adhere to the country’s fiscal responsibility legislation and build financial buffers through instruments such as a sovereign wealth fund.
Dukharan also suggested that the country’s foreign exchange controls are “a major deterrent and disincentive to foreign investment” and suggested more liberalization of the market.
The post Economist continues to predict Bahamas credit default, says IMF program a good strategy appeared first on The Nassau Guardian.
source https://thenassauguardian.com/economist-continues-to-predict-bahamas-credit-default-says-imf-program-a-good-strategy/
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