Wednesday, March 10, 2010Bahamas In Debt

Candia Dames National Debt Nearing $4 Bil.

The national debt is inching closer toward the $4 billion mark, reflecting the high level of borrowing undertaken by the government in what has proven to be extraordinarily difficult economic times.

In its Quarterly Statistic Digest published yesterday, the Central Bank of The Bahamas revealed that the national debt rose from $3.2 billion in 2008 to $3.9 billion in 2009.

"The national debt reflects information which had been put out before, indicating that because of the extraordinary global and financial circumstances in which we find ourselves, we have had to do some extraordinary things to shore up the economy and to alleviate the hurt and pain that Bahamians have suffered as a result of the crisis," Minister of State for Finance Zhivargo Laing told The Nassau Guardian yesterday.

"So we have had an extraordinary jump in the national debt, and we recognize going forward that there is a need to do the necessary to bring the growth rate of the debt more in line with what had been our previous targets, and which will be more sustainable targets. Again, all of this is quite reflective of what we had anticipated at the start of and in the midst of this crisis."

More than $1 billion has been added to the national debt in three years.

Laing previously revealed to The Nassau Guardian that the government borrowed $872 million since coming to office in 2007. With the economic crisis still not over, the expectation is that the government will have to undertake more borrowing this year.

The latest statistical information from the Central Bank came a day ahead of Prime Minister Hubert Ingraham's much-anticipated mid-term budget statement, which Laing stressed he wished not to preempt.

Today Ingraham, who is also minister of finance, is expected to tell the House of Assembly, and by extension the nation, that while the worst of the financial and economic crisis has passed the country is still a long way off from any appreciable economic growth.

At this juncture government revenue remains strained, demands on government spending remain high, the job market remains pressured and foreign direct investments continue to be subdued.

The government has had to juggle these realities amid strong criticisms from critics who argue that the hundreds of millions of dollars borrowed have not been channeled in a way that would maximize results and help economic development.

The prime minister is expected to report on the state of government debt and government revenue. There continue to be fears that the country is on target to exceed debt to GDP ratios of 50 percent. Fiscal experts recognize 40 percent as the threshold before gliding into the danger zone.

The interim budget exercise provides an opportunity for the examination of debt ratios, revenue and expenditure performance, and the government is expected to make an attempt at balancing rising debt against the need to institute measures to rouse a lethargic economy.

In its most recent economic report, the Central Bank said the domestic economic environment is projected to remain challenging in 2010.

However, the pace of the economic downturn is expected to slow in comparison to 2009, supported by the ongoing recovery in the global economy, the report added.

"Tourism activity, although posting modest improvements in recent periods, is still likely to be constrained in the near-term, given the persistent weakness in consumer spending in the main U.S. market," it said.

"Foreign investment-led construction activity is projected to be weak in the absence of new projects and the relatively anemic credit conditions in international markets. In this environment, the unemployment rate may remain relatively high, although a modest offset will be achieved from government's temporary work program."

Government's deficit and the corresponding debt to GDP ratios are anticipated to remain elevated over the year, in the absence of policy measures, as sluggish private sector demand constrains revenue prospects, the Central Bank added.

Oyster Publications Inc, PO box 3369, Road Town Tortola, British Virgin Islands, VG1110