Caribbean & Central America - December 2013 (ISSN 1741-4458)

This time last year the reputation of British Overseas Territories in the Caribbean was taking a fearful hammering, with the Turks & Caicos Islands making a very wobbly return to self-rule after three years of direct rule from London, and the Cayman Islands also being threatened with direct rule from London before giving in over its refusal to implement a previously agreed reform package.  By contrast, Bermuda’s year-old One Bermuda Alliance (OBA) government has commissioned, and now just received, an impressive blueprint for reform, albeit one that warns about Bermuda facing a “grim reality” after four straight years of economic contraction.

The OBA is the successor party to the now defunct United Bermuda Party (UBP) which ruled the British territory for 30 continuous years from 1968 to 1998.  The UBP imploded after losing the 2007 general election by 14 seats to 22 to the Progressive Labour Party (PLP).  On 17 December 2012, the OBA squeaked home against the PLP by a margin of just 19-17.  Craig Cannonier became premier, replacing Paula Cox who lost her seat.

The report from the Spending and Government Efficiency (Sage) Commission, which was commissioned by Finance Minister Bob Richards in April, pulls no punches.  The introduction to the report warned that Bermuda is facing challenges that “a few decades ago would have seemed unfathomable”.

This is undoubtedly the case, with the government expecting 2013 to record the fifth straight year of economic decline, albeit with a return to growth in 2014.  Net public debt increased in FY2012/13 by US$240.9m to reach US$1.477bn, a 19.6% increase over 2011/12.  Reflecting this deterioration, in June the ratings agency Fitch joined Moody’s (in May) in downgrading Bermuda.  Fitch Ratings cited the continuing recession, sustained high fiscal deficits, and the increasing government debt burden as the reasons for downgrading the government’s bond rating to AA- and changing the rating outlook from stable to negative.  It warned that public debt could reach 40% of GDP by 2014/15, up from 28.5% in 2012 and just 6% in 2007.  The agency warned that “multiple changes in the debt ceiling have undermined the credibility of this fiscal policy anchor”.

It is this credibility gap that the government is seeking to close with the Sage Commission report.

The Sage report noted: “Bermuda is labouring under a cost of government that continues to increase an already substantial debt and threatens to destabilize the financial foundation of the country.  Its population is declining.  Its two principal industries, tourism and international business, are facing increasing competitiveness.  Where once its citizens had a choice of jobs, rampant unemployment hovers like a spectre over a country in profound transition.”

It then identified two problems in particular: a too expensive and cumbersome government structure and a less than effective civil service.  The Sage Commission says that the government and legislature are too big for the size of the country, and it declares that “the lack of effective leadership is compounded by a lack of fiscal discipline by both civil servants and politicians”.

The report demands expense reductions of US$65m, US$75m, US$80m, and US$90m a year for the next four years, which it accepts will be “a mammoth task”.  Among the cost savings suggested is a 15% reduction in the cost of running parliament, with the number of House of Assembly seats being reduced from 36 to 30.  The size of the cabinet, the report says, should be reduced to eight, including the premier.  Salaries for ministers and MPs should also be reduced, in line with reductions suggested for the civil service.

“However”, warns the report, “these cost savings do not equal the targeted 15%.  We therefore recommend that the remaining areas of the Legislature’s budget be reduced to make up the difference and/or further reductions in the salary of Ministers and Members of the Legislature.”

Not surprisingly, pensions is another target area, and the Sage Commission warns frankly: “The stark reality is that promises made regarding pensions will have to be broken.”  Among the proposed remedies is a graduated increase in the retirement age to 68 and, in all probability, eventually to 70.

The government’s response to the report has been positive.  Finance Minister Richards told parliament: “I would like to formally congratulate…the Sage Commission…for the excellent quality of this report, a report which stands as testament to what out invisible resource, ie our intellectual capital, can accomplish when it is generally accepted that something has to be done.”