In the series, Rebirth and Call to Action, Attorney Alfred Sears, QC, looks at ways to expand Bahamian entrepreneurship and ownership, diversify the economy and build more accountability, transparency and effectiveness to the political and governance processes.
By Alfred M. Sears, QC
Arundhati Roy, the Indian novelist in the April 3, 2020 issue of Financial Times, makes a call to action to India to use the COVID – 19 pandemic to abandon the dead ideas of the past and fight for a new sustainable world:
“Historically, pandemics have forced humans to break with the past and imagine their world anew. This one is no different. It is a portal, a gateway between one world and the next. We can choose to walk through it, dragging the carcasses of our prejudice and hatred, our avarice, our data banks and dead ideas, our dead rivers and smoky skies behind us. Or we can walk through lightly, with little luggage, ready to imagine another world. And ready to fight for it.”
The COVID-19 pandemic affords The Bahamas an opportunity to explore our inner space to heal family, formulate a vision for ourselves, our family and our country and to begin a conversation about a more sustainable development strategy for The Bahamas.
We are faced with the stark choice of whether or not to maintain our failed economic model of a declining tourism product, a financial services sector in flight, rising seas due to global warming, a broken and inefficient governance system and abandoned Family Islands.
The heroic response of the Bahamian health professional medical establishment in treating COVID positive patients under difficult circumstances, food stores and pharmacies, other essential service providers and the delivery of employment benefits, loans and food supplies by the Government, NGOs, businesses and private persons all demonstrate the tradition of stewardship, service and community must be harnessed if we are to build a more sustainable future beyond COVID-19.
Much respect, thanks and appreciation to these extraordinary patriots, who are keeping us alive!
COVID – 19 arrested economic production in and shattered the normalcy of Bahamian life. In the absence of extensive testing to determine the location and scope of infection and the absence of a vaccine, it is difficult to project the return to some level of social life and economic certainty.
The declaration of the Proclamation of Emergency on March 17, 2020 for fourteen days, extended on March 31st and April 6th respectively mandated stay at home, social distancing, 24-hour lockdown and wearing of masks in public to prevent the spread of the virus.
Within the past seven months, The Bahamas has suffered two catastrophic events which threaten to wipe out a significant portion of its Gross Domestic Product (“GDP”).
In July 2019, the Bahamian National Budget 2019/2020, projected Gross Domestic Product of $12.9 billion, with an outstanding national debt of $8.7 billion (or 67 percent of GDP) and with debt servicing of $340 million, the largest allocation in the Budget. At that time, it was projected that additional borrowing would be limited between $600 to $800 million and a projected GDP growth rate of about two percent.
However, by September 2, 2019, the optimistic projections of the Budget were brutally interrupted by Hurricane Dorian which made landfall on Abaco and Grand Bahama and, according the World Health Organization, Inter-American Development Bank, UNLAC and the Pan-American Health Organization, caused a loss of $3.4 billion, about a quarter of the country’s GDP or “equivalent of the US losing the combined economic outputs of California, Texas and Florida.”.
The Bahamas was forced to reorder its priorities to provide humanitarian assistance and restoration support for the communities and businesses in Abaco and Grand Bahama. Six months later, the COVID – 19 pandemic caused The Bahamas to again reorder its priorities.
The Deputy Prime Minister/Minister of Finance, as reported by Natario McKenzie of Eyewitness News, March 18, 2020, unveiled to Parliament a $20 million stimulus loan package for small business continuity; $10 million for temporary unemployment benefits package$4 million food assistance; and $11 million for COVID 19 detection, isolation, treatment and mitigation activities.
He projected economic loss from this pandemic, on an extreme scenario, at $1 billion. However, economist and UB Professor Rupert Pinder, as reported in Eyewitness News, April 6, 2020, estimates a fiscal deficit of $1.6 billion caused by a $600 – $700 million reduction in tourism revenue due to COVID – 19. Professor Pinder estimates the COVID 19 losses or impact on GDP will be about $2.5 billion, increase the National Debt to $10.413 billion and the unemployment rate to 24.8 precent.
The Bahamas’ debt servicing is the largest budget allocation at $345 million, compared to education at $340 million and the Ministry of Health at $301million. This obligation is not sustainable, as the country battles the COVID crisis and attempts to restart its economy
The Bahamas has not faced such a crisis, as the present, since the Great Depression in 1928. The IMF predicts that COVID-19 will produce the worst global slowdown since the Great Depression, with a three percent shrinkage of the world economy in 2020. Therefore, the devastating effects of this pandemic on the global economy require an international recovery plan equivalent to the 1948 $15 billion Marshall Plan, which should include debt forgiveness, to finance the rebuilding of the post COVID-19 global economy, especially vulnerable countries such as The Bahamas.
Yet, to date, there has not been any unified international political response to this global contagion, in the absence of which there can be no full recovery.
The answer to this crisis is not to go back to a dying Bahamian economic model of development, where the tourist plant is dependent on two Las Vegas-style Nassau-based hotel resorts and cruise ships that receive about 90% of the national incentives, exemptions and subsidies, with The Bahamas retaining merely about 10 percent of the tourist dollar, and a crumbling financial services industry in flight under constant protectionist assault by onshore financial centers and their ad hoc bodies, such as OECD, FATF, FSB, etc.
COVID-19 is a call to action to The Bahamas to unite around a renewed vision so that we “can walk through lightly, with little luggage, ready to imagine another world. And ready to fight for it.”
I believe that, with vision, courage and the maturity to set aside partisanship, we can create a more sustainable future in the context of a shifting world balance of power and new global digital economy based on innovation, creativity and excellence of service delivery.
The Government, Official Opposition and civil society should begin constructing a new development strategy, with the assumption that The Bahamas has an industrious, creative and talented population that could, through inspiring, inclusive leadership and fair and even-handed policies, be mobilized as a united and innovative force to establish a diversified economy, fair and cohesive society to compete effectively in the new global economy. Are we prepared to overcome the divide of partisan politics, race, ethnicity, class, gender and national origin, to fight for this new vision of a sustainable future for The Bahamas?
The Bahamas, having lost a significant portion of its GDP within the past seven months, should, as an immediate step, seek relief from its debt servicing obligation to enable the Government to deal with the COVID-19 health crisis, arrest the free-fall of its economy, provide a safety net for the most vulnerable, stabilize businesses, save jobs and stimulate consumer demand. The Government should assemble an expert team to negotiate with the multilateral lenders, bondholders, banks and NIB for appropriate variations of the terms of its $8.7 billion National Debt, of which $2.618 billion is foreign currency debt, to provide flexibility in cash flow management. Borrowing alone, in the instant circumstances, cannot solve this crisis, especially after Standard & Poor’s downgrade of Bahamian sovereign credit rating to junk bond status!
The losses to the Bahamian GDP within the past seven months were due to exogenous shocks and not irresponsible fiscal policies. Therefore, The Bahamas has a valid claim for debt relief to enable it to respond to the COVID-19 health crisis and stabilize its economy.
Growing Support for Debt Forgiveness/Restructuring
On April 12, 2020, Pope Francis, in his Easter Message, with respect to the COVID-19 pandemic, appealed for “all nations be put in a position to meet the greatest needs of the moment through the reduction, if not the forgiveness, of the debt burdening the balance sheets of the poorest nations.”
On April 15, 2020, the International Monetary Fund’s Managing Director, Ms. Kristalina Georgieva, announced the IMF’s approval of relief on debt servicing, under the Catastrophe Containment Trust, for 25-member countries for the next 6 months, subject to extension for up to 2 years. The countries include Afghanistan, Rwanda, Haiti, Liberia, Mozambique, The Gambia and Madagascar.
Further, on April 15, 2020, G20 Finance Ministers and Central Bank Governors agreed to suspend bilateral government loan repayments for low income countries until the end of the year, as part of a COVID-19 Action Plan, called on private creditors to participate in this initiative on comparable terms and requested the IMF and Work Bank to explore options for suspension of debt service payments by the most vulnerable countries over the suspension period.
Similarly, in 2004, Indonesia and Sri Lanka negotiated sovereign debt moratoria, with the support of the Paris Club, after the Indian Ocean Tsunami. This risk sharing also did not lead to market exclusion or impair access by these countries to the capital market.
Therefore, sovereign debt forgiveness or restructuring is seen by more and more countries, private creditors and multilateral agencies as a preferred route, rather than disorderly default, to achieve debtor sustainability over a reasonable period of time, especially in regard to disasters caused by climate change. In 1996, the International Monetary Fund and World Bank sponsored the Heavily Indebted Poor Countries Initiative (HIPC) with the aim of ensuring that no vulnerable country faces a debt burden it cannot manage.
Further, after the Island nation of Dominica was devastated by Hurricane Maria in 2017, representatives of churches and civil society in the Eastern Caribbean and Barbados issued the Statement from Jubilee Caribbean, March 5, 2018, calling for debt relief as an instrument for emergency support and reconstruction. Jurgen Kaiser in a paper entitled “Debt Relief as a response to Natural Disaster in the Caribbean”, describes a hurricane clause that Grenada had negotiated with its private bondholders in 2015 to restructure its debt after Hurricane Maria. Similarly, the Government of Barbados restructured its debt with its bondholders by agreeing an immediate moratorium on debt payment, upon the occurrence of a hurricane, if only temporarily, and concessional rescheduling if struck by another natural disaster. Therefore, risk sharing, while not widespread, is possible in the financial markets.
The climate justice claims of The Bahamas and other low-laying island nation, for debt relief, including swapping debt for investments in resilience and reconstruction, was compellingly made by the Secretary General of the United Nations himself, Mr. Antonio Guterres, on September 14, 2019 during his visit to The Bahamas and witness of the devastation in Abaco from Hurricane Dorian: “First, is that we need to stop climate change. We need to make sure that we reverse the present trend where climate change is running faster than what we are. And second, that countries like The Bahamas that do not contribute to climate change, but are in the first line of the devastating impacts of climate change, deserve international support, to be able to fully respond to the humanitarian emergency but also for the reconstruction and the building of resilience of their communities and their islands.”
Further, the Secretary General revealed that the United Nations is pursuing the following mitigation measures: “We have been working in the United Nations with three governments in the Caribbean to present proposals aiming at a swap between parts of the debt and the investments in resilience and reconstruction. And we hope that international financial institutions will be able to agree that this is one very interesting way for the international community to support countries in the reconstruction and in creating the conditions for them to be more resilient under these circumstances.”
In the context of the global dislocation from COVID 19 and the Bahamian vulnerability to global warming caused by the lending countries, The Bahamas has a compelling justification for debt forgiveness of some of its $8.7 billion National Debt. And the $3.4 billion loss from Hurricane Dorian and the high co-morbidity during COVID 19 are very sound bases for debt restructuring options.