Outgoing Chairman of Fidelity Bank (Bahamas) Sir William Allen – after painting a bleak portrait of the Bahamian economy, which he says shows “anemic” growth and generally “remarkably unimpressive” performance – hailed the implementation of value-added tax (VAT) and said implementing an aggressive energy policy “could represent a sea of change in our circumstances”.
Sir William said the apparent inability of the Bahamian economy to generate the dynamism necessary to have a major impact on unemployment, coupled with the abiding sense of needing to secure ever higher levels of foreign direct investment to balance international payments and the impression of an economy too long at the brink of a breakthrough, suggests there may be a need for change in some of our basic economic arrangements.
Writing in his chairman’s report – contained in the bank’s 2014 Annual Report, released over the weekend – Sir William said the first such change may have already occurred.
“The implementation of VAT creates the opportunity for arresting the ever-increasing level of national debt and once again restoring confidence in public finances. Such confidence is hugely important to long-term planning in both the private and public sectors,” he said.
Sir William has long been associated, however loosely, with the idea of implementing value-added tax in The Bahamas. For example, in a 1995 interview with The Courier, Sir William – serving at the time as minister of finance and planning in the first Ingraham administration – talked about The Bahamas being “philosophically against income tax”, and said some other form of indirect taxation such as VAT “might be a possibility”. Such a system would not mean a great deal of difference for retailers or consumers, he suggested at the time, since the current price of goods in The Bahamas includes any customs duties that have been levied.
And later, as the Christie administration approached implementation of the tax, Sir William warned that to do so without a reduction in current revenue measures was “a recipe for recession”. This was against the backdrop of the administration’s initial proposal of VAT, to be implemented at 15 percent on July 1, 2014.
Fast forward to the FBB annual report for 2014, and Sir William writing that the stage was set for “significant progress in fiscal consolidation” with the successful implementation of VAT.
Sir William also targeted the high cost and inefficiency in our production and distribution of electricity.
“There can be little doubt that this represents an enormous burden on the Bahamian economy as a silent killer of profits and opportunity. If this burden cannot be addressed, it is doubtful that the vibrancy of the Bahamian economy will ever be unleashed again,” he said. “And if it truly is that relief is now in sight, as is being promised, this could represent a sea change in our circumstances.”
Sir William added that the historical hugeness of the current account of The Bahamas’ balance of payments has been a monumental drag on the country’s resources over the years and has prevented The Bahamas from building reserves surpluses despite the considerable foreign investments the country has traditionally attracted.
Dealing with this imbalance is complex and could involve many moving parts, but the end result of a successful outcome would be a net reduction in the deficit on the current account. In point of fact, one of the positive outcomes that can result from a successful energy/electricity policy would be a reduction of the deficit on the current account primarily as a consequence of any reduction in the oil import bill.
He added that reliance on growth in the United States and the global economy as a sufficient condition to restore vibrancy to the Bahamian economy seems a doubtful proposition now, and suggested a ‘retooling’ of the country’s own economic situation.
Sir William said FBB has learned how to prosper in weak economic circumstances and has been doing that remarkably well. But the sustainability of such a strategy in the long run has to eventually betray its limited shelflife.
Still, he reported that during 2014, Fidelity expanded its assets by more than six percent, and increased its net income by 45 percent. Its return on average assets was higher for the year, as also were its earnings per share.
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