Bahamas Debt Warning Issued
Journal Staff Writer
Governor of the Central Bank Julian Francis on Sunday contradicted Prime Minister Perry Christie by revealing a level of debt that is higher than what the nation’s leader pointed to during the budget debate last week.
Mr. Francis also warned that the government must move now to contain the national debt to prevent a fiscal crisis in the future.
“We can’t continue to add to the national debt indefinitely,” said Mr. Francis, who was a guest on the Radio Love 97 Programme “Jones and Company”.
Mr. Francis said that the national debt is now around $2.4 billion, which is 42 percent of GDP. But last week, the Prime Minister said the debt was just under 40 percent of GDP.
Countries that go beyond the 40 percent mark are considered to be entering the danger zone in terms of fiscal management.
Mr. Francis said, “So you can see, we’re already marginally above that number at 42 percent. That doesn’t mean that all of a sudden we are bankrupt over night or anything like that, but it does mean that you don’t want to go much further than this.”
He pointed out that since 1984, the national debt has increased from 25 percent of GDP to the present figure of 42 percent. This increase spanned three different administrations, he reminded.
“There is a tendency on the part of our country to accumulate debt in order to balance the budget of the government and what I am saying as the spokesperson for the Central Bank of the Bahamas is that this is getting to the point where we should not see this as a continuing option,” said the governor, who stressed that he was not attempting to create alarm over the situation.
He agreed with the Prime Minister that the national debt is less of a concern because most of the debt is domestic.
“I accept that idea,” Mr. Francis said. “It would be of a much more important concern if it were substantially in foreign currency.”
With the budget debate ongoing, there has been much talk about the national debt and the projected deficit of $164 million.
“The fact that there is a deficit means that the government has to borrow to fund that deficit and any borrowings by the government have to be paid back at some point,” Mr. Francis said.
“What I am saying is that there is a point where we need as a people to recognize the fact that we’ve probably reached a level of borrowing that should not be too easily exceeded, except during very, very important emergencies,” he added.
While on the Sunday programme, Mr. Francis again highlighted the need for Bahamians to pay higher taxes.
It prompted the show’s host, Wendall Jones, to ask, “Do you think that it is proper for the Governor of the Central Bank to be making statements about the need to have an increase in taxes at a time when the Prime Minister and Minister of Finance has introduced a budget and has said that he is not going to increase taxes? Isn’t that walking out of step with the Government of The Bahamas?”
Mr. Francis responded, “Well, no. I don’t think so and I am sure that the government would agree with me on this. The role of the Central Bank, which is an entirely professional institute, is to be a kind of monitor, in a way, almost a police on these kinds of issues.”
He added, “I have not sought and I don’t think that it is appropriate in fact to put myself at odds with the government on these kinds of issues, but it certainly does not prevent me – and I think that we have to be extremely careful about that. If we get to the point where there can only be one view expressed, then I think it changes a bit the character of our country.”
Mr. Francis said his intension is not to criticize the government, but to sensitise Bahamians to the fact that there is no such thing as “a free lunch.”
“If we would like to have additional roads, hospital and schools,” he said, “we have got to be ready to pay for that.”
While expressing the need for a higher level of taxation, Mr. Francis also applauded the government’s efforts to improve its system of tax collection.
“You’ve got to collect what you can,” he said. “Don’t misunderstand me all. I have absolutely nothing at all to say [against] the idea of being more effective in collecting taxes. I think that is absolutely correct, but I don’t think that will cover the deficit.”