economy

Budget 2019/20 – Much Ado About Nothing

  • Budget communication falls flat

  • Government has credibility deficit

  • No relief in sight for hurting masses

  • Focus on figures at the expense of Bahamians

  • Duty reductions will have minimal impact after VAT


The Minister of Finance delivered his third Budget Communication in the House of Assembly yesterday to a nation in desperate need of hope and some positive news. Once again, the Free National Movement (FNM) administration showed its lack of compassion and disconnection from the plight of the masses. The delivery of the communication was both uninspiring and underwhelming, while the extended rendition of shallow pronouncements was painful to watch.


In a communication that fell flat for most Bahamians, the government’s idea of positive news was the continuous reminder that the Value Added Tax (VAT) rate will not be increased again. In the aftermath of a 60% increase in the VAT rate in the previous year, this heartless administration expected nationwide jubilation for choosing not to worsen the financial condition of the Bahamian people.


Bahamians can now confirm that the Democratic National Alliance (DNA) was right in its assessment of the 2018/2019 budget of hardship when we stated that the government would fall short of its revenue projections and the economy would be negatively impacted. The admission by the Minister that the government fell short of its revenue target by hundreds of millions of dollars is testament to the accuracy of our prognosis a year ago.


The government is projecting that the GFS deficit for 2018/2019 will come in at $229 million dollars despite the revenue shortage as a result of spending cuts. We note that this administration was forced to admit that the Minister of Finance’s deficit forecast for the 2017/2018 fiscal year was higher by $105 million dollars. Hence, the government has a credibility deficit when it comes to projections on both revenue and expenditure.


We witnessed another episode of self-aggrandization and pats on the back by politicians who have forgotten that they are not doing taxpayers any favors but rather spending our hard-earned dollars on projects they select. The reduction in customs duties to the tune of $28 million in the face of the massive increase in taxes to the tune of $500 million last year is a slap in the face of struggling Bahamians. A closer look at the reduced tariffs and the affected items for the 2019/20 budget will show that they will have minimal impact on the finances of majority of Bahamians.


It was noted that the deficit is at its lowest in 10 years and the Minister demanded some commendation for this achievement. What he failed to mention is that 10 years ago, the government’s revenue was half (about $1.3 billion less) of what it is today, and total expenditure was $1 billion less than it is in 2019. Hence, within a decade, successive administrations have significantly increased taxes on the backs of the Bahamian people to fund their insatiable appetite for spending and wastage.


The current administration is out to lunch and oblivious to the dilemma of Bahamians challenged to make ends meet daily. They believe that eliminated tariffs on pencils, crayons and sharpeners is worthy of praise while being convinced that several Bahamians have the disposable income to embark on the purchase of new furniture and appliances. This follows a recent international report that notes that The Bahamas is the fourth most expensive nation in the world to live in. While taxes and fees have continued to rise, so have unemployment figures while the income of average Bahamians have remained the same or lowered.


The budget communication perpetuates the practice of the Progressive Liberal Party (PLP) which places the burden of taxation on the poor and the middle class. The pontification on tax fairness is disingenuous when taxes are not based on individuals’ earnings and ability to pay. The current system of governance for special interest groups will not change until there is campaign finance reform in The Bahamas. Until then, he who pays the piper will continue to call the tune and the decimation of the Bahamian middle class will not cease.


The highlight of the show that was the budget communication was the suggestion that the FNM is committed to meritocracy. This follows several conflicts of interest, failure to provide details on spending, appointment of FNM cronies to high-paying jobs, award of contracts to supporters without a transparent bidding process and political interference in government agencies among others.


The DNA will be taking a deeper dive into the numbers within the actual budget in the days ahead and provide the Bahamian people with the key themes from a budget that is anything other than the people’s budget.


Arinthia S. Komolafe

Leader

Democratic National Alliance


DNA responds to WTO Report

  • 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



PM Address Falls Flat for Bahamians

Summary:


  • Speech was uninspiring and underwhelming

  • No new ideas or information for economy

  • Government fails to articulate economic or financial services growth plan

  • Address failed to demonstrate strategy to return Bahamas to investment grade

  • Silence on WTO and OBAN deafening


In the immediate aftermath of the release of labor statistics which show that unemployment is on the rise, many Bahamians looked forward to the Prime Minister’s address to the nation. The widely publicized address was supposed to focus on the government’s plan for the economy and outline plans for its revitalization.

Regrettably, the speech fell flat as it failed to inspire hope among the Bahamian people or offer innovative ideas for the resurgence of an economy with stunted growth. The PM sought to spin the unemployment narrative by touting a reported fall in joblessness in Grand Bahama and Abaco but glossed over the approximately one percent rise in New Providence. This is despite the reported record increase in tourism numbers for 2018 and announcements of multiple foreign direct investments.

It was disappointing to watch the nation’s leader make a feeble effort at justifying his recent visit to Europe with a delegation. The PM could only report that the bilateral talks were constructive, and the objective was to ensure that the European Union (EU) understands the government efforts in meeting the EU’s demands. There was no communication of a Financial Services Growth Action Plan (FSGAP); rather, the government has maintained its reactive and myopic approach to this vital sector of our economy. The government seems to have resorted to presiding over the demise of our financial services sectors through the proverbial thousand cuts.

The Democratic National Alliance (DNA) welcomes any initiative that is aimed at improving the ease of doing business in The Bahamas. In this regard, improvements in the operations at the Department of Inland Revenue (DIR) come as a relief to businesses. We submit that while the creation of a promotional arm of the Bahamas Investment Authority (BIA) could provide some gains, there are operational inefficiencies plaguing the BIA and modernization is long overdue.

Bahamians anticipated a report on the economy that included an update on the economic impact of the austerity measures imposed via the budget of hardship for 2018/19. Unfortunately, no accountability or report on stewardship of the people’s money was provided; consequently, an opportunity to distinguish the FNM Government from its predecessor was squandered.

The PM spent a considerable portion of his address on listing several intended or proposed projects and investments. The challenge here is that we’ve seen this script before with successive administrations outlining multiple projects across our archipelago of islands with a vast amount never coming to fruition for the foreseeable future. The simple response of the Bahamian people to these grandiose announcements is that the proof is in the pudding and we will not count our proverbial eggs before they hatch.

Commentaries on the Commercial Enterprise Act (CEA) have become monotonous to the populace. We call on the government to provide the Bahamian people with a report on the economic impact of the CEA including the capital injection or inflow to date, local and permanent jobs created, work permits issued, and government revenue derived from the increase in economic activity following the enactment of the legislation.

Public utterances and lamentation on the ease of doing business in The Bahamas vis-à-vis opening of bank accounts and the blue economy by the government constitute nothing more than grandstanding. We implore the PM and his government to simply get the job done rather than communicating with his ministers and stakeholders via a national broadcast.

In his national address, the PM failed to inform the Bahamian people how he and his cabinet will position The Bahamas’ credit rating from a junk bond status to investment grade.  Further, the PM was silent on the topic of The Bahamas’ accession to the World Trade Organization (WTO) and the OBAN deal which has resurfaced in recent times. This deliberate silence was deafening and telling for a government that campaigned on transparency and accountability. Has the government concluded that the WTO and OBAN are not priority areas and will not positively impact the Bahamian economy in the manner that they’ve been touting? The nation’s leader missed a rare chance to address the concerns of the Bahamian people. While many had minimal expectations for the PM’s address to the nation, we are saddened that he proved them right and delivered yet another underwhelming speech.

Arinthia S. Komolafe, Deputy Leader

Democratic National Alliance



Unemployment Figures Reflect Government’s Dismal Performance

The recently released preliminary results of the labor survey conducted in November 2018 confirm that the government has failed to adequately incentivize the private sector and stimulate the economy to put a dent on unemployment figures within our nation. Our people are suffering under an administration that failed to prepare for governance while in opposition and assumed office without an economic growth plan.

Despite the touted boom in the tourism sector and publicized record number of arrivals in 2018, it is apparent that this has not translated into sufficient jobs for the Bahamian people during the referenced period. The true state of the economy is further worsened when the loss of high paying jobs in the financial services industry and the level of underemployment is factored into the equation.

There is no empathy for an administration that has done little to alleviate the suffering of the masses and refused to implement deliberate policies aimed at economic empowerment of our people. On the contrary, the current administration has increased the rate of taxation within a regressive tax system that burdens the less privileged and middle class. Bahamians may recall that the DNA had warned that the 60% increase in the Value Added Tax rate to 12% would impact investor and consumer confidence while threatening the job security of Bahamians.

The government of blunders has invested millions of dollars of taxpayers’ funds in a dilapidated hotel and passed a Commercial Enterprise Act without anything to show for these initiatives. It is inconceivable that the recent voluntary separation exercise at the Grand Lucayan will increase unemployment in Grand Bahama which will be reflected in the May 2019 figures unless the current trend is reversed.

At a time when economists are predicting an imminent slowdown in the global economy and a recession by 2020, the private sector will remain challenged to create enough jobs to absorb new entrants into the labor market. The International Monetary Fund’s estimation that  The Bahamas needs 5.5% economic growth to absorb all new entrants into the Bahamian workforce and to cut existing jobless rates in half will continue to be unattainable until the government develops and communicates an economic growth plan.

Political rhetoric and spinning of obvious facts are not helpful to the plight of struggling Bahamians who live the reality of an increase in the unemployment rate from 9.9% in May 2017 to 10.7% in November 2018.

Surviving under a budget of hardship and an increase in the cost of living, the increase in the unemployment rate from 10.1% to 11% on New Providence is significant seeing that the capital accounts for 70% of the employed labor force. This rise far outweighs the minimal decrease in unemployment in Grand Bahama and modest fall in Abaco.

The released statistics show that the government continues to fail the youth of our nation as unemployment within this important category stood at 23.1% in November 2018 when compared to 20.1% in May 2017. The unemployment rate among women was 11.3% when compared to 10% among men; evidence of the lack of any specific focus on economic empowerment of our people.

While we laud the spirit of entrepreneurship of our people, the 11.9% increase in self-employed persons between May 2018 and November 2018 could also be attributed to the softening of the jobs market and Bahamians resorting to starting their own businesses to make ends meet.

In total, the unemployed labor force has increased to 25,135 in November 2018 from 21,880 in May 2017 showing a further deterioration in this important statistic. This is despite an increase in the government’s recurrent expenditure from a projected $2.1B for 2017/18 to an estimated $2.6B for 2018/19 and a rise in capital expenditure from a projected $233M in 2017/18 to approximately $300M for 2018/19. It is apparent that only the government and its loyalists are feeling the policies of this administration.

We maintain that deliberate actions, steps and initiatives have to be undertaken to achieve the desired and target growth levels. This must entail a combination of fiscal, monetary and economic policies as well as social reforms. It is simply reckless and irresponsible to leave this to chance, luck or coincidence.

On behalf of the Bahamian people, we petition the government to get its act together and implement an articulated economic growth plan or vacate office. There is too much at stake and our people have been suffering for too long.

Arinthia S. Komolafe, Deputy Leader

Democratic National Alliance

Government Urged: Release Fiscal Forecast Details

  • Fiscal projections were in jeopardy before legal challenges

  • Budget impact analysis remains a secret document

  • Transparency and accountability continue to elude us

  • Details of projections should be released

  • Actions fuel suspicion that no financial modeling done prior

 

It was recently reported that the Minister of Finance believes that the legal challenges by the web shop industry will put additional pressure on the Government’s 2018/2019 fiscal projections. This is bearing in mind that the Government had supposedly anticipated an increase in revenue of between $30 million and $40 million based on changes to the taxation system for this industry.

The Minister further suggested that a cutback in the form of more austere measures may be on the horizon should the Government be unable to meet its revenue targets. This is unacceptable; the Bahamian people should not be subject to additional hardship and suffering due to the lack of proper analysis, planning and consultation prior to the implementation of new fiscal measures by the Government.

The Government has ignored repeated calls for the release of the economic impact assessment conducted to justify the significant hike in the VAT rate, other taxes and fees. Rather, the modelling and forecasts document that was referenced remains shrouded in secrecy and away from the Bahamian people. The Government has effectively chosen to ignore the people’s demand for transparency, accountability and good governance while seeking our empathy for potentially missing their revenue targets.

We note that there was significant resistance to the proposed revenue measures in the lead up to the budget debate. The duplicitous actions of the current administration in increasing the VAT rate after opposing the implementation of this tax while in opposition has been highlighted on numerous occasions. The Government was advised that an increase in the tax rate will not necessarily translate into a corresponding increase in tax revenue with potential consequences in the form of reduced consumer spending, confidence and purchasing power. The reality is that the risk of missing revenue projections was always present prior to the legal challenges referenced by the Minister.

The adhoc policy decisions on certain tax measures fuel the suspicion that no proper financial modelling was done by the Government prior to the preparation or implementation of the national budget. We are hopeful that this is not the case and urge the Government to dispel this notion by releasing their detailed projections to the public. The revised projections will ideally factor in the purchase of the Grand Lucayan, the tax revenue forgone for breadbasket items, VAT exempt implications for insurance products and medicines, the increase in the VAT exempt minimum threshold for BPL customers and reversal of the tax treatment for owner-occupied dwellings.

In releasing the economic impact analysis, the Bahamian people will be better informed on the anticipated impact on Gross Domestic Product (GDP), unemployment, the poverty index, inflation and consequently economic growth projections. The Bahamian people are intelligent and can decipher information for themselves. This is the least that we can expect from the people’s time government.

 

Arinthia S. Komolafe

Deputy Leader, Democratic National Alliance

Moody’s: Government must address fiscal policy credibility

Moody’s: Government must address fiscal policy credibility

In the absence of an articulated economic growth plan, a robust national disaster risk management framework and demonstrated commitment to fiscal prudence, it is difficult to envision how the current administration will be able to address the concerns raised by Moody’s. Further, the absence of these vital elements undermines the ability of the Government to reverse the negative outlook, stave off any further downgrades of our sovereign rating or improve our existing rating.