The new Inter-American Development Bank (IDB) report, "Dealing with Debt - Less Risk for More Growth in Latin America and the Caribbean", is very instructive and insightful and should be given close scrutiny and consideration by leaders in the region and certainly The Bahamas.
There are no really significant groundbreaking revelations but more so important validation of well understood impact and implication for where countries stand within this new paradigm of national indebtedness.
Three major highlights from the report tell a worrying story of their own.
In a decade and a half, the debt burden of the region has near doubled. This holds true for The Bahamas. Debt to GDP in 2008 was 25 percent.
The debt that was necessary to fare the vagaries of the recent pandemic and global financial crisis is now poised to unleash its own version of pain.
Debt servicing as a proportion of government revenue is significant and is likely to rise.
The institutional support necessary to effectively manage and help lessen the pain and burden of the debt taken on is far from primed and ready and consequently there is the inevitability that some countries in the region will, in the near to midterm, feel the debilitating pressure of debt on their economies.
Successive governments have simply failed to implement reforms necessary to support and facilitate growth and reduce spending.
Generally what is at risk here, and this is certainly the case for The Bahamas, is not the ability to repay the debt but the risk of reduced growth potential as a result of the level of debt and the attendant pressure that the lack of growth will itself create on government finances.
The report indicated, "To achieve prudent debt levels, policymakers can focus on better fiscal institutions, implementing fiscal consolidation, improving debt management, and providing well-targeted assistance to promising private firms."
This is a reasonable argument to accept but on analysis one would readily realize that it speaks directly to the challenges faced in the region generally and in The Bahamas.
The reality is that the discipline needed in the arena of spending and policy reform is emerging too slowly, if at all, to have the desired impact on managing the way forward.
With The Bahamas quickly reverting to its historical growth potential, pre-current debt levels, it will be hardpressed to secure improvements in the economy beyond the current robust reconsolidation.
This, with a new experience with respect to level of debt, puts the country at risk financially, creates serious pressure on an already narrow fiscal space and limits the ability to implement planned policies in development promoting sectors.
Bearing in mind that the report speaks to the entire LATAM region, one has to make mental adjustments for the nuances of The Bahamas and the lesser grouping of the Caribbean.
On analysis many of the matters specified in the report as it relates to debt have been implemented or attempted by the country: Fiscal council, engagement of major market makers and advisors, effort to rebalance the local composition of debt, amongst others.
The major issue that one might miss is that the combination of debt and low growth plus the losses as a result of the pandemic, make it near impossible for countries to positively shift market sentiment.
Coupled with the limited opportunities to secure funding via low-cost measures, these countries, The Bahamas included, cannot efficiently and adequately cover borrowing needs.
This will force policymakers back to the more expensive debt market under less than ideal circumstances. The outcome of this has the potential for vicious impact on fiscal target, debt level target and most certainly constrains on available resources to meet planned initiatives and committed domestic obligations.
The Bahamas is better placed than most countries to deal with its circumstances. Part and parcel of that ability though must address the historical lethargy at spending, institutional and sectorial reforms.
The fiscal balance sheet of the country continues to demonstrate weaknesses and given the breadth of observed need will require either a shift in spending discipline or measures to expand revenue beyond current potential.
Interestingly, even if the latter is pursued, without the former solutions will fail to be sustainable.
Of course, honest assessment would suggest that dramatic changes at this moment may not be sensible.
Coming to terms with its reality and solving the issues at hand will require taking practical, pragmatic, strategic and urgent steps.
Given what have been done to date and the success realized it's now time to turn to what has not been looked at sufficiently, reforms.
The report calls for a careful study not so much to understand what is required but to appreciate the implication of what may flow from a lack of action and attention as seen through the eyes of learned, informed and generally objective actors.
The recent release of the Fiscal Strategy Report points to policymakers' recognition of the need for growth.
The projected growth of GDP to $16 billion by fiscal year 2026/2027 is and will remain a critical imperative.
We will analyze this in a piece to follow.
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