Governor And Minister At Odds
Some members of the Cabinet are reportedly peeved over recent remarks made by Central Bank Governor Julian Francis, who warned the government against borrowing to balance the budget.
When asked on Tuesday what he made of Mr. Francis’ warning, Minister of State for Finance James Smith said, “I think the governor should stick to monetary policy like all former governors did. The comments on fiscal policy are not sometimes useful, but I’ll limit my comments to that for the time being.”
Mr. Francis also recently suggested that Bahamians should be made to pay higher taxes, although he stressed that it was not his intention to put himself at odds with the government.
The governor said that it is the role of the Central Bank to be a policeman on these kinds of issues that also impact the development of the monetary sector.
He indicated that the government may face a fiscal crisis in the coming years if it continues to borrow at the rate the country has been borrowing at over the years.
According to the Estimates of Revenue and Expenditure, the government expects proceeds from borrowings to total $260,277,287 to fund the 2004/2005-budget shortfall.
This level of borrowing represents $60,921,40 more than what was borrowed this fiscal year. This comes as the government continues to face warnings about the increasing national debt, which presently stands at around $2.4 billion.
The funds borrowed will be used to help cover the projected GFS deficit of $164 million, according to government officials.
In 2001/2002, the government borrowed $207,085,781; in 2002/2003, it borrowed $219,195,153; and in 2003/2004, the figure is estimated to be $199,355,879.
But Minister Smith said the government expects that it will actually have to do real borrowing of $176 million.
“I should point out that $90 million of [the $260 million figure] are loans that have already been committed for projects in the pipeline,” he told the Journal Tuesday.
“For instance, the IDB road project, which is about $40 million, is included in that. So the actual borrowing needs for 2004/2005 is really about $176 million.
“That’s the amount that we will probably have to go to market for, either locally or abroad, but that decision will be made later on in the year as we see how the revenue performs. I should also point out that these are all projections or estimates. If we perform much better on revenue or if we hold the line on expenditure, then surely we would have a reduced need for borrowing on the recurrent side.”
Prime Minister Perry Christie explained last Wednesday that there is no need for alarm regarding the size of the national debt, given that most of it is held domestically.
On Sunday, Governor Francis, who was a guest on the Love 97 programme “Jones and Company” said, “We can’t continue to add to the national debt indefinitely and that’s really the fundamental point that I’m trying to make.”
When asked whether this figure of over $260 million is significant, Parliamentary Secretary in the Ministry of Finance Michael Halkitis said that, “It is not insignificant.”
He added, “We have to keep things running. There’s a lot to do, especially capital works in the Family Islands. But we don’t believe there is any cause for alarm.”
Mr. Halkitis said the government is banking on an economic turnaround before the end of the upcoming fiscal year.
“We expect a lower shortfall the next year,” he said, indicating that borrowing should be substantially lower in 2005/2006.