Bahamas Has To Borrow US$125m

by Mike Godfrey, Tax-News.com, New York

22 May 2002

The Bahamas' new government, elected two weeks ago in a landslide victory, has told the nation that substantial borrowing will be needed to underpin existing spending programmes.

In a televised address on Sunday evening, James Smith, Minister of State for Finance explained that with a fiscal deficit of more than $140 million, and contributing factors such as September 11, Hurricane Michelle, and the impact of the OECD, the government will have to borrow to sustain planned programmes and expenditure commitments.

Said Minister Smith : "The setback to tourism as a result of September 11, has been estimated by a regional organization to cost the Bahamas some $200 million so far in lost growth tourism revenue. Other damaging setbacks were the impact on the financial services sector of the uncertainties generated by the initiatives taken by the OECD . . . and of course there was the impact of Hurricane Michelle."

Mr Smith also recalled the marked slow down in the US economy prior to September 11th and the Bahamian economy had been brought to a virtual stand still in 2001.

"As the slow down in tourism and construction activity rippled through the economy, the challenge facing the government is to reverse this deterioration and restore growth in employment and incomes. There is still some uncertainty about the global economic outlook and the outlook for the US economy 2002," said the minister.

He added that in the six-month period October 2001 to March 2002, the number of tourists coming to the Bahamas was 3.3 percent below the number in the same period of October 2000 to March 2001.

"What is even more striking is that, between October 2001 and March 2002, the number of air arrivals was over 14 percent below the number in the period October 2000 and March 2001; this enormous reduction in demand for the most economically significant component of our tourism sector is an indication of the damaging medium term consequences to the Bahamian economy of these terrorism events. We must trust and pray there will never be a repetition of the horrible event of September 11," he said.

The result, said Mr Smith, was that, instead of the fiscal balance projected in the 2001-2002 budget presented in Parliament earlier this year, there is likely to be a fiscal deficit of more than $140 million or about 3 percent of Gross Domestic Product.

"This deficit means that government must borrow to finance expenditure commitments. The Bahamas has the capacity to surmount this immediate problem, because the international banks with a presence in the Bahamas, and the Bank of the Bahamas have already indicated their willingness to immediately provide $125 million for this purpose once the necessary authority is obtained from Parliament," said the minister, adding that the resolution to approve the $125 million facility will be presented to the House of Assembly at the earliest opportunity.

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