Oxford Economics reiterates accession is not panacea
Broad based reforms not synonymous with WTO accession
Case studies confirm flawed approach
WTO is no substitute for comprehensive economic growth plan
Government must address implications for economy and fiscal plan
The recently released WTO Impact Assessment produced by Oxford Economics and commissioned by the Bahamas Chamber of Commerce and Employers’ Confederation provided some insights that reinforced widely held concerns by Bahamians. In general terms, the Report did not reveal concerns that had not been expressed by the Democratic National Alliance (DNA) in our position paper on the WTO released in January of this year nor by diverse local commentators and observers albeit it did go into more details on the potential impact of WTO accession on the Bahamian economy. High energy costs, inefficiency of government agencies, lack of enforcement of laws and a deficient governance system plagued with poor transparency and accountability have been highlighted for several years.
The DNA has asserted on numerous occasions that accession to the WTO is not a panacea for the myriad structural weaknesses and should not be the main impetus for long overdue reforms within the Bahamian economy. It is encouraging to see that Oxford Economics shares the same sentiments. The political will to engage in deliberate efforts aimed at reducing the cost of doing business and enhance the ability of local businesses to compete on a global stage should be the driver of positive change in our economy.
In its assessment of scenarios under which The Bahamas accedes to the WTO, Oxford Economics considered the potential impact on the national budget, balance of trade, Gross Domestic Product (GDP), taxation, unemployment and foreign direct investments among others. The key finding on the need for a more broad-based approach to structural reforms exposes the Achilles heel of the current administration which has adopted an ad-hoc and siloed approach to governance.
Case studies outlining the challenges faced by other jurisdictions that have acceded to the WTO is instructive to the government. The level of preparation and strategic planning employed when combined with the extent of reforms implemented prior to accession should not be ignored. From all of the cases highlighted, it is clear that little regard is given to the internal weaknesses of small and vulnerable jurisdictions during negotiations. The government should learn from these experiences.
There has been no articulation of the revenue replacement measures planned and the effect of WTO accession on the aggressive fiscal consolidation plan. Under a described scenario, the Report notes that the budget deficit could widen by 1% or approximately $120 million dollars in 2021. After imposing a massive 60% increase in Value Added Tax (VAT) on taxpayers, how does this fit into the plan to deliver a balanced budget within the stated timeframe?
According to the Report, annual GDP growth is projected to increase by 0.5% to 2% for a cumulative growth rate of approximately 5.6% over ten years if a comprehensive approach to reforms is adopted. An approach that is not holistic is expected to yield a 0.8% GDP growth rate over a decade. It is apparent that both scenarios yield growth rates that significantly lag the 5-6% required to absorb new entrants into the job market annually.
The Report acknowledges consistent international pressures on our financial services industry and appears to dispel the fallacy that accession to the WTO will bring an end to the assault on our number two industry. The authors of the Report highlighted the need to rethink the value proposition of this vital industry as the DNA has recommended to the government on numerous occasions. Simply put, there is a need to rethink, refocus, rebrand and reposition our financial services industry.
In its conclusion, the Report tempers the often-exaggerated benefits of WTO accession by projecting that WTO accession will bring modest or limited gains for the Bahamian economy. Oxford Economics noted that there are legitimate concerns by Bahamians and residents in relation to the possible effects of international competition. This observation was followed by a recommendation to engage in proper consultation with the populace. The DNA submits that the findings as documented in the Report when considered in conjunction with the crisis within the WTO, justifies its position. We submit that sustainable economic growth cannot be achieved through a strategy that is disjointed and myopic in focus towards WTO accession.
Arinthia S. Komolafe, Leader
Democratic National Alliance