October 10, 2019
More than a month has passed since Hurricane Dorian ravaged the northern Bahamas. As I stand before this Honourable House today, my heart remains heavy knowing the trauma that so many suffered; the long road ahead to heal the lives that have been shattered and to rebuild the devastated communities. At least 61 people are confirmed dead. This tragic loss of life has irrevocably changed families and communities: not just in the affected islands, but across the country. There are also approximately 350 people who are still reported missing. My heart cries for those families, wanting to know more, praying for their miracle.
When the Prime Minister speaks about the “generational devastation”, this will be felt the most within the families of those who lost loved ones. As a nation we mourn together, the sorrow of this loss.
Though my heart is heavy, I am confident we will piece our lives back together as a people, grow through this experience and rebuild thriving communities. Our people are strong, they are determined and they are resilient. And in the days and months and years to come, the heaviness we now experience will ease. The Bill we are tabling today will help to better position us for this recovery and to put in place a framework that will allow us to improve our preparedness for dealing with hurricanes.
The force and strength of this deadly storm has been an eye opener for the country in many respects. In the face of global climate change, nothing can be taken for granted in terms of our preparedness for, or capacity to respond to catastrophic natural disasters. While we are no strangers to the impact of hurricanes, Hurricane Dorian has taught us we must adapt to a new sobering reality of devastating and more frequent hurricanes.
In September, our second and third largest economic centers were reduced to rubble. They endured the strongest hurricane to strike The Bahamas since records began in 1851. Hurricane Dorian packed sustained winds of 185 miles per hour, gusts of 225 miles per hour, and storm surge over 20 feet, making it the second strongest hurricane to ever cross the Atlantic Ocean. In a sobering way, Hurricane Dorian laid bare our vulnerabilities as a small island nation, and as an archipelago. It is unfortunate that we experience the brunt of the impact from climate change, although we are not the primary contributors. But hurricanes pay no mind to geopolitics. They follow their own indiscriminate path, and show no regard for who is ready or not.
That is why it is particularly important for us to have the appropriate plans and policies in place to strengthen our resilience and our responsiveness; to adequately ensure public safety before, during and after the passage of storms, and to protect the well-being of our economy. The key is to plan our social and fiscal response strategies ahead of time.
Hurricane Dorian has taught us important lessons and, as responsible policymakers, we are taking heed. This is precisely what the Disaster Preparedness and Response (Amendment) Bill, 2019 represents; it is one of many legislative initiatives that will strengthen our preparedness and response under this new reality.
The new bill has several components. First it allows the Prime Minister to call a mandatory evacuation order for all residents and islands in the predicted path of the storm. This change will have several implications for our future responses to natural disasters, including how we address the fiscal dimensions. To be sure, the Government will be required to address the logistical needs associated with mass care and shelter services under a mandatory evacuation.
In the hours before Hurricane Dorian hit Abaco and Grand Bahama, many residents were urged to evacuate areas that were at high risk of storm surge and severe wind damage. They were directed to shelters that were deemed safe to reduce the risk of loss of life. This call was also issued to ensure that first responders would not be required to unreasonably risk their lives against hurricane force winds to conduct search and rescue operations for those who did not evacuate voluntarily. Experience has shown that stronger compliance with evacuation orders can safeguard lives. When residents do not take heed, they are often left to seek refuge during the eye of the storm, or in even more unsafe conditions, after their homes are consumed by winds and storm surge. We must avoid this at all cost.
To prevent this from happening in future storms, this Bill seeks to allow the Prime Minister to call for a mandatory evacuation order for all residents and islands in the predicted path of the storm. The Government has a duty to protect the welfare of its people and to manage its fiscal resources responsibly. We cannot conduct business as usual moving forward. The bill to provide for mandatory evacuations is an important step forward in a new direction.
This bill also provides powers to the Prime Minister to impose a curfew to maintain safety and security. It imposes restrictions for travel routes, and proper regulation over the distribution of essential goods, services and resources. The bill also allows the Prime Minister to make necessary decisions which are reasonably justifiable to suppress anarchy, civil disorder, looting, home or shop breaking or assault of any kind.
This Bill represents change in the way we provide relief to affected communities and it promotes social and economic resilience. To ensure that adequate relief is provided to those affected by the storm, in a timely and efficient manner, this Bill also seeks to allow the Prime Minister to make an order declaring relief from the disaster. This relief could entail targeted social services, the rebate of business licence fees, a waiver of VAT, exemptions from excise or tariff tax, as well as a waiver of any other fee, levy or tax payable under any law.
It will ensure that relief is provided to the citizens of The Bahamas by this Government, and future Governments. It will ensure that every Bahamian is given a fair chance to rebuild and restore their lives in the aftermath of a storm, as opposed to being held back by their own Government. It will ensure that Bahamians are put first, and remain first in the eyes of their Government.
ii. Fiscal Policies amid Hurricane Relief
It is not uncommon for the Government to provide relief after a hurricane. However, under the provisions of this bill the Government will be able to implement relief measures with greater speed and efficiency.
For the benefit of the House and the public, I wish to highlight some of the fiscal policies taken to provide hurricane relief in the immediate aftermath of Hurricane Dorian.
The Government issued an Exigency Order that allowed persons to import hurricane relief supplies duty free and Value-Added Tax (VAT) free to Grand Bahama and Abaco, based on a set of conditions. For a few items – water, clothing, food for personal consumption, and personal hygiene products – the Exigency Order was originally set for 30 days following the storm and then extended by another 15 days to allow more persons to benefit from this tax relief. The remaining listed goods were made tax free for 90 days following the hurricane. These include cots, medicine and medical supplies, bedding materials, and building materials.
This is precisely the type of tax relief needed in the initial aftermath of a storm--accommodations that allow humanitarian aid to flow quickly, and individuals to benefit from life saving support. In the medium term, it makes the prospect of rebuilding more affordable for individuals trying to restore normalcy to their lives and business owners working to rebuild their businesses.
In addition to the Exigency Order, the Government announced that Special Economic Recovery Zones (SERZ), which are to be established in Abaco and Grand Bahama for a period of three years. Similar to the Over-The-Hill initiative, these communities will benefit from the following tax relief measures and economic incentives:
. All materials, fixtures, furniture, vehicles and equipment for approved commercial projects and residential construction and rehabilitation efforts will be duty free, including domestic purchases for qualifying items. In essence, this will be structured similar to the bonded items facility of the Port Authority area in Grand Bahama, in that residents in Abaco and East Grand Bahama can purchase their building materials duty free on the respective islands. Individuals can also purchase these goods duty free in New Providence through participating vendors. Where this involves commercial vehicles, they will be bonded to the respective island. Approval will be subject to ongoing oversight and validation, and items will attract duty if moved, at any point, outside of the designated SERZ.
. Business Licence fees will be waived for all operations within the SERZ for all new businesses, and for existing businesses that return their employee count to at least 60 percent of its pre-Dorian level by December 2020. This will be tracked and monitored, and any company that fails to meet the criteria will have to pay their Business Licence fees.
. Real Property Tax will be waived on all eligible properties that are reconstructed, restored or otherwise inhabitable by October 2020. This is only applicable to foreign homeowners, as property in the Family Islands owned by Bahamians is not subject to Real Property Tax. Properties that are not repaired or refurbished will not be able to benefit from this tax break.
. A VAT credit of up to 50 percent will be granted on the sale of qualifying real property. To qualify, the purchaser of the property must:
. Provide plans to undertake material commercial or residential development of the property, if the land is vacant,
. Provide evidence that the property acquired is in a fully habitable condition, if the land is already developed,
. And provide plans for the immediate repair or refurbishment of properties that are not in a habitable condition.
All of these criteria must be met within 75 days of the close of the sale and must be followed through to scheduled completion. If not, the VAT becomes payable.
. A $10.0 million loan guarantee and equity financing programme will be established to allow eligible Bahamian SMEs to secure up to $500,000 in financing, in an effort to restore existing businesses impacted by the Hurricane, as well as to create new businesses. This is a syndicate venture of the Small Business Development Center (SBDC), the Bahamas Venture Capital Fund, the Bahamas Development Bank, and the commercial banks. The Government will guarantee $10.0 million to facilitate grants, loan guarantees and equity capital —whichwill be funded out of the Dormant Account proceeds. Smaller businesses will be able to obtain grants of up to $15,000 along with loans up to the same amount administered through the SBDC with financial instruments housed by the Bahamas Development Bank. The Bahamas Venture Capital Fund will be provided up to $2.0 million for equity investments of between $20,000 and $100,000 to support businesses specifically in the SERZ. For larger operations, preference will be given to businesses with proven track record with limited insurance coverage and ability to otherwise qualify for commercial credit.
. The Provisional Business Licence Programme will be extended to all businesses within the SERZ to allow all qualifying businesses to get their operations up and running within 2 business days of their completed application. This will impact all business in the SERZ, with the exception of potentially hazardous undertakings. It is important to emphasize that obtaining the provisional license is contingent upon the receipt of fully completed applications.
. Finally, a One Stop Shop for business assistance will be created in Abaco and Grand Bahama, to aid with the facilitation of regulatory requirements within five working days of making an application. The One Stop Shop will feature representatives from the SBDC, the Bahamas Investment Authority, the Ministry of Finance, the Department of Inland Revenue, the Department of Environmental Health, and Building Permits Units of the various agencies. This shop will be the Point of Contact for registering projects and initiatives that qualify for the concessions I previously mentioned, as well as for tracking and monitoring the respective projects.
These policies are designed specifically for the persons affected by the hurricane, and are intended to provide a stimulus to rebuild their lives, their homes, and their businesses. Over the remainder of the month of October, the Ministry of Finance and its agencies will provide the specific details on how citizens and residents will be able to access the various elements of the Special Economic Recovery Zone. Tomorrow, along with the Small Business Development Centre and our partners, I will be briefing the press on the specifics of the $10 million support program for small businesses as this element will be rolled out immediately.
iii. Fiscal Impact of Hurricane Dorian
I want to pause now to provide some very preliminary information on the overall estimated fiscal impact of Hurricane Dorian and its expected impact on the 2019/20 Budget. In short, Hurricane Dorian has put a strain on the Government’s finances and it has and will impact the pace at which we are able to deliver on our medium-term macroeconomic and fiscal plans. Before Dorian, the Government had successfully met its fiscal target for FY2018/19. In the 2019/20 Budget, we plotted a path for further fiscal consolidation over the medium-term horizon, in the context of a relatively mild, yet stable growth assumptions. As it now stands, this plan has to be adjusted to take into consideration the fiscal cost of the Hurricane Dorian response.
Before I expand on this, I want to put things in context with the people and the communities that had their livelihoods and future prospects washed away by the storm. The fiscal impact of Hurricane Dorian is a reflection of the affectedpeople and the affected communities who are living with a type of economic anxiety and uncertainty that most of us never saw coming and could never fully understand.
The buildings they utilized on a daily basis to work and earn a living have been hollowed out, mangled or wiped off their very foundation. As a result, many people are forced to ask the question today: How am I going to make a living? How am I going to feed my family? How am I going to survive without my main source of income? This is the economic impact for people who were affected by the storm, and who must be at the forefront of our minds as we continue recovery efforts, plan for the future, and deal with the fiscal impact of Hurricane Dorian.
By extension, we cannot ignore the broader impact on communities as well. Many small businesses are unable to operate, even if only temporarily. It means the loss of the little tuck shop that residents would visit after work to pick up a few missing groceries. It means the loss of the barber shop and nail salon where community members would gather to talk about the news of the town. It means the loss of the roadside breakfast stand where school children and workers would stop in the morning on their daily commute. Many businesses are facing the exceedingly difficult life choice of whether to start over or move on.
These are not easy or normal times for our people and our communities. As we continue recovery efforts, plan for the future, and consider the fiscal impact of Hurricane Dorian, I want to reassure the Bahamian public that the people and the communities who were on the frontlines of this disaster are at the forefront of our minds.
To provide some context on how the economies of Grand Bahama and Abaco fit in with the overall fiscal performance of the country, I wish to note that in FY2018/19, economic activity in Abaco accounted for 6.4 percent of Government revenues, while Grand Bahama constituted 7.3 percent of total revenues. Proportionally, this may seem small; however, this contribution has always been an important component for delivering on the Government’s overall budgetary projections.
Early estimates prepared by the Ministry of Finance point to a revenue shortfall of nearly $215.0 million, or 8 percent of the overall revenue projected for FY2019/20 as a direct result of Hurricane Dorian.
When it comes to spending, initial estimates show we will need to spend an additional $222.4 million, with a split of $80.9 million for recurrent spending and $141.5 million for capital. These funds will primarily be used for rebuilding critical infrastructure on Abaco and Grand Bahama, including electricity and water services, the reconstruction of affected medical facilities, the construction of temporary housing and the delivery of targeted Government services and assistance to affected populations.
To offset hurricane related expenditure and replace loss revenue, the Government proposed to make use of several loan offers from international and domestic lenders. These sources are in addition to the $100.0 million Inter-American Development Bank (IDB) Contingent Loan for Natural Disasters—of which $30.0 million has been provisionally allocated to electricity restoration, $15.0 million for water restoration, $30.0 million for social welfare—which includes a possible extension in NIB unemployment benefits—$15.0 million for clean-up efforts, and $1.0 million for the reimbursement of evacuation and shelter costs. The remaining $9.0 million has not yet been allocated.
In respect of funding to support the restoration of electricity and water, I wish to advise the House that $10 million has been advanced so far to BPL and some $6 million to the Water & Sewerage Corporation to permit them to purchase items and mobilize services to begin the restoration.
The government is also making use of the $12.9 million from the Caribbean Catastrophe Risk Insurance Facility (CCRIF) for recovery related costs.
In addition, the Government will deploy $20.0 million from the extinguished Dormant Account Funds for disaster related recovery activities—of which$10.0 million will be earmarked for the mentioned support for Small and Medium-Sized Enterprises (SMEs),as mentioned earlier, $5 million to help defray costs related to the provision of temporary housing and the remaining $5.0 million for use by the new Ministry of Disaster Preparedness, Management and Reconstruction on specific rehabilitation and restoration efforts.
Further, the Government is presently in early discussions with other multilateral lenders, as well as local commercial banks, on the provision of possible loan facilities to cover the remaining financing need.
The extent that the Government receives grants in money or kind, from both the domestic and international communities, will ease the direct burden on the fiscal purse for the various social relief, rebuilding and restoration activities. As of October 7, 2019, the National Emergency Management Agency (NEMA) received approximately $5.8 million in donations from a consortium of private, corporate, foreign government, intergovernmental, and non-profit organizations (NGOs). So far, $1.9 million is being spent on the purchase of Recreational Vehicles (RVs) which housed relief workers and volunteers, and $2.8 million was spent on the mobilization of dome structures to provide the mentioned temporary housing for displaced persons. Again, these donations will continue to offset hurricane related spending for the public sector.
As the Prime Minister has committed, the Ministry of Finance will provide a detailed report each month providing the details of both Central Government spending and NEMA receipts and spending toward Hurricane relief efforts. The first of these reports will be produced and made public later this month. Like this government has done with budgetary reports, we shall again set the standard in accountability and transparency in respect to the substantial sums that have been raised and will be spent on these critical matters.
Given that our revised projected revenue will be in the region of $2,414.0 million, and expenditure at $2,987.5 million as a result of Hurricane Dorian, the fiscal deficit for FY2019/20 is likely to be nearly $573.4 million, or an elevated 4.5 percent of GDP. This exceeds the $137.0 million or 1.0 percent fiscal target as prescribed by the Fiscal Responsibility Act. Given this deviation, the Government is required to devise and present a fiscal adjustment plan outlining three components: 1) the reasons for the departure from the fiscal target, 2) the measures the Government intends to take to get back on track, and 3) an estimate of how long it will take to do so. As required by the Act, we intend to provide such a plan to both the Parliament and the Fiscal Responsibility Council in November as part of the upcoming 2019 Fiscal Strategy Report. We will also present a supplementary Hurricane Dorian budget that will outline the adjusted revenue and spending positions, alongside a request for the additional borrowing authorizations.
I wish to reiterate that these numbers are very preliminary. The United Nation’s Economic Committee for Latin America and the Caribbean (ECLAC) and the IDB have recently been on the ground working alongside public officers to conduct a full Damage and Loss Assessment (DALA)–similar to the exercises completed following the last three hurricanes that have hit The Bahamas – Hurricanes Joaquin, Matthew and Irma. This assessment is extremely thorough, and will give a more comprehensive indication of the true cost of the Hurricane to both the private and public sectors, as well as the corresponding economic impact. These numbers will be used to revise our adjusted framework for the remainder of FY2019/20, and the medium-term horizon, which I will detail in the supplementary budget and the Fiscal Strategy Report.
iv. Fiscal Strategy: Importance and Future Prospects
All things considered, our commitment to fiscal prudence and the discrete decisions taken prior to Hurricane Dorian, have put us in a better position, to manage the fiscal risks associated with this type of weather related disaster. Here I am referring specifically to the Government’s decision to put in place the IDB contingent line of credit, the legal provisions to provide access to the use of extinguished Dormant Account proceeds, the decision to reinstate its insurance cover with the CCRIF, and the enhanced revenue measures that were approved in 2018. Again, while we still have some way to go, taking these proactive steps have created a situation where the country is fortunately in a much better position financially to address these unfortunate shocks to the economy and be able to rebound more strongly.
As mentioned, this unimaginable event for the country – which has impacted the lives of 70,000 of our citizens – will mean a temporary departure from our plans for fiscal consolidation. But this is not and will not be a license to return to the days of reckless and feckless fiscal mismanagement. The government will experience a significant decrease in revenue as Grand Bahama and Abaco will take months and years to recover. That is 20 percent of the economy that has gone off line for the time being. Similarly, the substantial costs to restore the public infrastructure and provide support to our impacted populations are and will remain a priority for the government. This requires substantial spending that obviously was not planned and cannot be delayed.
This combination of substantially reduced revenue and critically required expenditure will create a substantially different budgetary trajectory over the upcoming budgetary periods. But it will be temporary. The government will – consistent with the fiscal responsibility law – come to Parliament and the people with a clear plan as to how we will once again over the medium term move back toward our goal of manageable deficits and debts. Although these unfortunate disasters may delay our aim of sustained balance budgets, they will not deter us from our unshakeable pledgeto be a devoted and responsible custodian of the people’s money. Over the last three years, we have brought down the deficit by 66.3 percent. Unlike some who only talked and talked about fiscal responsibility during their time, we actually exhibited the political leadership to do to the difficult things to right the country’s financial ship. This is not only us on our side making this claim. International commentators have spoken to our demonstrated commitment and successes in stabilizing the country’s financial situation and in getting the economy moving again. We were doing what we had promised to do;it is this resolve what has equipped us to be able to manage this challenge today and it is this resolve what gives Bahamians the confidence that their government will keep its word and manage this challenge tomorrow.
As I would have mentioned in the press, the Ministry of Finance will work with public sector agencies to reduce their discretionary expenditure by 10 percent to help keep our fiscal house in order. This move however will not impact plans related to critical initiatives or the efforts to effect the restoration of the impacted islands of Abaco and Grand Bahama. That being said, Mr. Speaker, I believe that this entire experience will reinforce to the broader Bahamian people the value of the Government’s commitment to responsible fiscal management, and the benefits to be derived in times such as these.
As I conclude my opening remarks to this debate, I am hopeful that the disaster that is now Hurricane Dorian will soon be the rock on which a new and better Bahamas stands. What looms as hopelessness and despair now, will give rise to rejoicing and confidence. Lives will be restored, and the islands of Grand Bahama and Abaco will be more resilient than ever.
As the old adage goes “wisdom is to live in the present, plan for the future, and profit from the past,” we must make the best of the resources we have at hand, while using the lessons of our past to strategize for a more resilient, and sustainable future. I mentioned earlier that the solution to a disaster, particularly of this magnitude, is not found in any one person or country. Instead, it will take a myriad of past lessons, futuristic thinking, and focused strategy to bring about true change that will last. The race to restoration is certainly not a sprint, but a marathon.
One thing is certain: the risk of natural disasters is only becoming greater and greater. Hence, in our journey to restoration we must ensure that we take the proper steps to not only bring our citizens back to some sort of normalcy and restore economic activity, but also that we do so in a way that is defensible against future disasters. This includes our preparedness and response strategies.
The passing of this Amendment to the Disaster Preparedness and Response Act is essential to changing the way we prepare for and respond to natural disasters in The Bahamas. Granting the Prime Minister the authority to order a mandatory evacuation better protects the safety of our citizens to the best of the Government’s ability. Allowing for an order for tax relief makes certain that, as a people, we create an environment that is most conducive to rebuilding in the aftermath of a disaster.
We have a duty to protect the welfare of the people and an obligation to be good stewards of the country’s finances. These policies exemplify this Administration’s commitment to both of these objectives, as we seek to support our people and our communities with the task of healing and rebuilding.