Michael Halkitis, Minister of State for Finance, urged a commitment to strong fiscal reform on Wednesday at the Bahamas Institute of Chartered Accountants (BICA) half-day seminar on banking and governance issues for professionals.

“We have been able to achieve an enviable level of development in comparison to our peers in the Caribbean, with the highest per capita GDP (gross domestic product) of any independent state in the region and an exchange rate fixed, at parity, with the US dollar,” Halkitis noted.

However, fiscal deficits resulting in increased borrowing and an elevated debt level have threatened the nation’s ability to sustain this standard.

“The nature of this threat is of our making. Although the recession exposed fissures in the foundations of the economy, we cannot claim that the recession was the sole cause of our current difficulties,” Halkitis said.

By the Cabinet Minister’s analysis, the country’s government finance statistic (GFS) deficit has averaged 3.1 per cent of GDP, or $250 million, over the last five years. If one-off revenue items, or unexpected revenue windfalls, were excluded, this average would increase by at least $50 million per annum, according to Halkitis.

“I would argue that this deficit is the result of us not adjusting to the changing world and in many ways we have been reactive, as opposed to proactive in addressing the economic and financial issues, which we have faced over the years,” he said.

The government collects around 18 per cent of the country’s GDP in revenue, totaling $1.56 billion. The government spends about 24 per cent of the country’s GDP, or $2.2 billion, leaving behind a 6.5 per cent deficit.

“This deficit approximates our increase in national debt,” said Halkitis. “When you consider that the economy is only projected to grow by 2.5 per cent in real terms it is quite apparent that our debt burden in real terms is increasing on a per capita basis.”

The remedy, according the Minister, is to put the nation’s fiscal affairs in order.

Halkitis admitted that there is no easy way to go about it. Tax increases, if imposed without care, could lead the country to slip back into a recession, the same goes for 
dramatic cuts in expenditure. 

“The approach taken has to be carefully considered, methodical and most of all consistent as the gains may not be immediate or large,” he said.

Halkitis said that an important part of the government’s strategy to get the country back on firm fiscal ground is working along with Bahamian professionals, such as BICA members in two areas: the issuance of electronic receipts and the creation of a proper comprehensive register of assets and liabilities. 

“Accountants take these activities as fundamental to sound business practice,” he said.

“Unfortunately, these are areas which the public service, despite our best efforts, struggles. Success in these areas may not be as glamorous as introducing a new tax or creating a new programme, but they are equally important for sustained economic growth.”

tblair@dupuch.com