Governor of The Central Bank of The Bahamas, John Rolle is emphasizing that the country has not reached a level of debt distress, in response to a prediction by a respected Caribbean economist that the nation will default on its sovereign debt.
Noted Caribbean economist, Marla Dukharan asserted that The Bahamas historically high fiscal deficit could be more acute than projected; concluding that the Caribbean territory could very likely default on its debt obligations and forced to enter an International Monetary Fund (IMF) programme to assist in correcting its fiscal course.
However, in a quick rebuttal, Governor Rolle pointed out that while the country will have to do more to reduce the public debt burden in the medium-term, it must be accepted that The Bahamas has the resources and capacity to repair the government’s balance sheet.
In a statement over the weekend, Governor Rolle declared that, “The Bahamas is not at the level of debt distress, nor is the burden of public debt such that it would make a sovereign default a credible likelihood in the near term. The Bahamas has significant space for public finance reform and taxation, should it become more urgent than is already apparent.”
Bahamas far from exhausting its fiscal options
According to the Bahamas Central Bank Governor, “The Bahamas is far off from having exhausted its fiscal options and sophisticated creditors of the sovereign are conscious of this. Moving forward though, there is a need for greater recognition and embrace by domestic stakeholders of the credible, non-default range of options that are available to the sovereign. These options would impact the taxpayer well before creditors are harmed.”
The Bahamas government has borrowed in excess of $1 billion since the start of the fiscal year to help meet its financial obligations in the face of the COVID-19 economic crisis.
The national debt stands at just under $9 billion. In his statement, Governor Rolle hinted that taxpayers could be called upon to help reduce the country’s debt burden.
“As there continues to be support for fiscal stabilization, based on deficit financing, over the recovery path from the pandemic, I encourage stakeholders to balance their discourse with the recognition that the government will indeed require more means to repay the extra debt taken on; and to recognize that as taxpayers, we are all expected to help repay these obligations in one form or the other that does not involve default,” Rolle said.
The IMF, in its most recent consultation paper on The Bahamas, projected that the economy would shrink 16.2 percent this year and would take another four years to rebound to pre-pandemic levels. Despite his positive outlook for servicing debt, Rolle admitted the country’s economy remains exposed and drastic measures would need to be taken to shore it up.
Debt burden exposes increased hardship
Addressing the impact of the debt burden, Rolle asserted, “the debt burden leaves The Bahamas exposed to increased hardships from severe hurricanes and other shocks, as the sovereign will continue to need more flexibility and space to repair infrastructure, give relief to private businesses and provide social safety net assistance, after such setbacks.”
He said a national consensus must continue to be developed around both taxation and expenditure management that pay down the debt burden, within the medium-term fiscal consolidation plan.