Caribbean & Central America - August 2017 (ISSN 1741-4458)

Shortly after the Free National Movement (FNM), led by Dr Hubert Minnis, ousted the Progressive Liberal Party (PLP) in a landslide victory in the 10 May general election, the FNM’s incoming finance minister, Peter Turnquest, declared that the PLP had “literally left us with a cupboard that is bare”. In an address to the nation on 26 July, Prime Minister Minnis reiterated the difficulties that the government and the country face in the coming months, not least in trying to resist a further credit-rating downgrade by the main international ratings agencies.

In theory, the new FNM government should have an easier economic climate to cope with than its PLP predecessor. Although in 2012 the PLP inherited an economy growing at 3.1% annually, this dropped to zero in 2013, with two further years of recession following in 2014 (-0.5%) and 2015 (-0.7%). The marginal return to growth in 2016 came too late to boost the government’s ratings.

The FNM doesn’t face such strong economic headwinds, but it does have to cope with the consequences of the PLP’s fiscal irresponsibility, including the downgrade of the country’s sovereign credit rating by Moody’s ratings agency in August 2016, from Baa2 to Baa3, and the downgrade to sub-investment-grade level in December 2016 by Standard & Poor’s.

In his televised address to the nation on 26 July, the prime minister warned that the country faced another downgrade as a result of “five years of gross mismanagement and incompetence” by the PLP government. He said that the country was now in a “new era of financial discipline” and that, “unlike the former head of government”, as prime minister he would be “extraordinarily more vigilant in ensuring that my ministries adhere to their budgets and financial constraints”.

Backing up his words with actions, Minnis announced that spending in certain ministries was to be cut by 10%, that he would institute a hiring freeze, and that no contracts exceeding US$100,000 would be renewed. A special committee to advise on state-owned enterprises is to be appointed.

Referring to his medical background, Dr Minnis warned: “I am not going to sugarcoat the medicine that we are going to have to take to restore our fiscal good health. As a doctor, I know only too well that sometimes you need to deploy strong measures to get a patient’s fever to break as you seek to alleviate the symptoms and the underlying causes of ill-health.”

The prime minister went on to say: “The former practice of bypassing the Ministry of Finance and bringing new spending requests directly to cabinet, without review of the Ministry of Finance, is over. We are in a new era of financial discipline.”

The scale of the difficulty faced by the new government was revealed by Turnquest, who said that while the previous government had projected a fiscal deficit of US$100m, the actual figure would be more than US$500m. He said that the government would have to borrow US$722m in order to cover the fiscal deficit and to finance the government’s commitments for the upcoming fiscal year.

On 30 July, Turnquest held a meeting with Moody’s to explain the government’s strategic plan. After the meeting, he said: “We have to focus on growing the economy, and that is our primary objective at this stage, to correct and stem any unnecessary bleeding in the economy, in our fiscal situation, and then to grow the GDP, so that’s what we are focused on.”

Interestingly, he admitted that the goal of making 10% savings in certain ministries might not be achievable. He said: “We believe in regard to what we know to be wasteful spending and programmes that have questionable value to the Bahamian people, as well as looking at various contracts, both in terms of human resources as well as physical infrastructure contracts, that we ought to be able to realise some significant savings, [but] whether it will amount to 10% we will see.”

For the moment, Turnquest ruled out increasing the rate of VAT (currently 7.5%) or imposing it on “breadbasket items” or babies’ and children’s clothes, healthcare, insurance, electricity, and water bills.

FNM response

The FNM under its new leader, Philip Brave Davis, is trying to tread a fine line between accepting that it fell short in government and accepting that the FNM has the right answers going forward.

Davis has said that the party has begun a process of “change and reform”, but that its core values will remain the same. In a televised address on 31 July, he said that “Bahamians tell us they still profoundly support the ideology and mission of the PLP. They know that the PLP has brought about the biggest, best, and most profound positive changes that are the foundations of the modern Bahamas. And they still believe that the PLP remains a powerful force for good in our country.”

The question of ideology is where Davis clearly intends to challenge the government. He accused the government of having no agenda beyond “political revenge”, and he said that the proposed cuts risked putting the country back into recession and that the government was “condemning [young people] to desperation and a life of economic hardship”. He also went on to say that the PLP would oppose any ill-considered “slash and burn policy”, and he added: “In considering the human impact of government policy we have always been steadfast”.

Davis did say that he supported the imposition of anti-corruption measures, which he described as a “fundamental component of good governance”. However, it was clear that he was not giving wholehearted support to the government. He stressed that any anti-corruption drive had to be fair and had to target the private sector as well as politicians. He said: “The wealthy businessman who cheats on his customs duties is as corrupt as the politician who awards government contracts to his own businesses.”

Minnis was unimpressed by Davis’ speech, wondering in public the following day where the apology had been. He said: “I was listening for the apology. There was no such apology.”

The prime minister also said that he’d been hoping that Davis would say that the PLP was ready to enter into discussions with the government about putting systems in place to “deal with those who were wrong and who did wrong to the Bahamas, so that it never, ever happens again”. Dealing with corruption, the prime minister added, “has nothing to do with seniority, political affiliation, or financial status. We just want to eradicate it.”