The Bahamas “is just not earning enough to make ends meet”, according to the lead economics specialist for the Caribbean at the Inter-American Development Bank (IDB).
The forecast from Valerie Mercer-Blackman follows the Debt Analysis & Fiscal Sustainability Workshop held in Nassau last week.
The concern also expressed by Mercer-Blackman is that with increased public debt, the country’s debt-to-GDP ratio could enter the critical range if measures are not taken.
One of the chief concerns at the two-day event was rising debt in The Bahamas over the last five years.
“It is simply not making enough tax revenues given their expenditures,” Mercer-Blackman told Guardian Business from Washington. “The Bahamas is just not earning enough to make ends meet. It means they have to borrow and the deficit is getting worse. This is not because of a specific project. Its overall revenues are not keeping up with expenditures.”
As a general rule of thumb, the country has adequate capacity to pay its debt if interest payments on public debt are less than 15 percent of all government revenues. Mercer-Blackman said The Bahamas is not quite there yet, but “it is getting very close at around 13 percent”.
Meanwhile, illustrating the rise of national debt over the last five years, she told Guardian Business that the IDB pegged the country’s debt-to-GDP ratio at 31.7 percent in 2007. In 2011, it has risen to 48.7 percent.
“It could easily get to 60 percent by 2014,” she said.
“So far, that’s a huge increase over four years, even though it’s still below the standards of the Caribbean in terms of debt.”
The IDB specialist warned that taking on so much debt means spending is restricted in other areas, which ultimately discourages outside investors. It ends up having a “dampening effect” on growth, she added.
Given the nature of the economy, one of the main culprits for a decline in tax revenue is the drop-off in tourism. Although arrivals have been picking up, according to the IDB, total revenue has taken a hit.
“People are not spending as much. You have a rise in group sales, meaning people are coming on deals and a general lowering in spending. I think the way people save is by going, but for less time and trying to restrict costs,” Mercer-Blackman explained.
However, the IDB did see some hope in the situation.
A slow and steady recovery for tourism is expected in the next year, with a 2.5 percent rise over 2011.
Mercer-Blackman also credited the Baha Mar project’s role in aiding the economy in terms of construction and boosting GDP growth for next year.
“Overall, we are in agreement with the projection on growth.”
Nassau Guardian
