Debt to eclipse 5bn by year end

Wed, Apr 10th 2013, 10:30 AM

The country's total public debt is expected to surpass $5 billion by the end of this calendar year and government will likely run a similar deficit in the next fiscal year, according to a former minister of state for finance.
James Smith, who is also a key advisor to the Christie administration, noted that the government's commitments will be similar in the next fiscal year.
Debt servicing would have gone up and the cost of running the public corporations, such as Bahamas Electricity Corporation (BEC), hasn't gone down. The only decrease will be in the capital budget, although Smith said that slice of the pie is relatively slim compared to the overall picture.
"What you are seeing now is stopping the hemorrhage," he told Guardian Business yesterday. "It will be a much longer period to stop it and for the healing to take place. We didn't get here overnight."
According to the government's latest prospectus for Bahamas government registered stock (BGRS), released yesterday, public debt stands at $4.986 billion.
The Christie administration is now seeking $50 million through BGRS to partly cover a shortfall in the $550 million deficit this fiscal year.
Smith explained that another $50 million of the stock is likely to surface in the coming months to cover the anticipated $100 million shortfall, bringing the total deficit this fiscal year to $650 million.
"It is seldom that you take the whole amount at once. It often depends on liquidity in the system and immediate needs," he said. "This is to cover the overhang of commitments that weren't foreseen in the original budget."
Applications for the stock are open until April 15 at 3 p.m. Allocations begin the next day and close on April 17.
Confirming earlier assessments by Moody's, the former minister of state for finance said recent moves by the government, such as the introduction of value-added tax (VAT), will have a delayed impact on the economy.
Michael Halkitis, the minister of state for finance, recently met with leaders in the tourism industry to stress the importance of VAT and answer any questions or concerns.
He said the bottom line is that efforts will be made to minimize the overall impact of the new VAT on the cost of living for Bahamians.
"Simply put, the government needs to increase its total revenue intake as a share of total economic activity through a tax measure that is more buoyant and with revenue yields that increase more closely in line with the growth of the economy," Halkitis said. "As our economy has grown, import duties have not shown this buoyancy because, with rising standards of living, a greater fraction of our incomes is being spent on services."
Halkitis called VAT a "rebalancing process" whereby customs duties and excise taxes are reduced. Meanwhile, a number of services will be taxed for the first time, and in the end, the government should eventually be in a position to chip away at the debt.
Branville McCartney, a prominent attorney, entrepreneur and leader of the Democratic National Alliance (DNA), said the government is not taking a firm stand that is necessary to truly bring the country's finances in line.
While certain decisions might be unpopular, he told Guardian Business that politicians must address the "out of whack" civil service.
"The civil service ought to be more efficient than the private sector. The country needs to be run like a business," he said. "Millions and millions are spent through the civil service and public corporations. That is inefficient and the government will not take a stand to do anything about it."
McCartney made particular reference to Bahamasair, the country's national flag carrier.
He said the airline is bloated and over-staffed. In general, he said public corporations are often used as "political tools" and need to be privatized or slimmed down so they are profitable and no longer a drain on the treasury.

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