IMF: Bahamas' Debt Much higher Than Expected

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September 06, 2012

Port Of Spain, Trinidad - The International Monetary Fund (IMF) says The Bahamas' debt-to-GDP ratio has risen "much higher than expected", as it urges swift reform before the country reaches a tipping point. Gene Leon, mission chief of the IMF for The Bahamas, confirmed to Guardian Business that the organization has provided debt management consultation services in the lead up to its visit in October. The country's debt-to-GDP ratio, sitting at approximately 54 percent, is the number one concern for the IMF. Contingent liabilities among public corporations, such as the Bahamas Electricity Corporation (BEC), have pushed that figure into the "gray zone" of above 60 percent, according to Leon, which has sparked a cause for concern. "They have a fairly small capital expenditure program," he told Guardian Business.

"That has meant a continued deficit, which this year and last year has been rising. In terms of outcome, it is much higher than projected. Once these things start to slip, it can easily get to a point where it becomes a problem." Noting that the IMF has "flagged" this issue, IMF officials intend on bringing their concerns to the attention of authorities next month and highlighting the need for action and "policy redress". The mission chief said, generally speaking, The Bahamas has maintained a strong fiscal position. The country does not appear to be in need of loans or financing from the IMF at this stage.

Nevertheless, he noted that eyebrows are raised anytime a country strays into the 60 to 90 percent debt-to-GDP ratio range. Holding that kind of debt and the subsequent interest burden can have a profound impact on development and growth, he explained. The opportunity cost of what you could be doing with these high payments, he added, is also acutely felt. In other words, those funds could be used for social programs, education and infrastructure development.

"The cost becomes very high from a developmental perspective," Leon said. The central point of IMF meetings in October will be to show the government it needs to change the trajectory of the debt-to-GDP path, one that has risen considerably from below 40 percent before the financial crisis in 2008. The comments to Guardian Business came near the end of a two-day conference in Trinidad and Tobago on high Caribbean debt and low growth prospects. Hosted by the IMF, the Caribbean Development Bank (CDB) and the government of Trinidad and Tobago, top government officials were encouraged to work together and rethink fiscal policies.

"We had a very important exchange of views and some new ideas were formed on the special circumstances faced in the Caribbean," said Saul Lizondo, associate director of the Western Hemisphere Department for the IMF. "We touched on a number of issues, such as competitiveness, and the need to improve competitiveness to improve growth. We discussed the question of fiscal space and the need to deal with a high level of debt. And the final discussion was on the question of how the fund can help authorities."

Leon told Guardian Business there will be no "magic bullet" for ensuring growth in The Bahamas. He encouraged the government to focus both on fiscal savings and growing the economy. He said recent discussions on tax reform should act as an important step in bringing about improvements. The basic criteria, he insisted, must be a system that is equatable, efficient and has growth orientation where there is a clear dividend coming out of it. From an industry point of view, The Bahamas will be urged to find innovative ways of bolstering tourism, expanding it to other parts of the country and creating linkages to other sectors of the economy.

Click here to read more at The Nassau Guardian

News date : 09/06/2012    Category : Business, Nassau Guardian Stories

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