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DNA: Budget 2020/21 Is a narrow focus on a crisis

29 May 2020

Tel: 376 3068


Budget 2020/21: A Narrow Focus on a Crisis

· Record deficit and debt burden pose challenges

· Focus on short term and immediate actions

· Missed opportunity for structural reforms and real economic diversification

· Questionable commitment to real food and energy security

· Budget must be accompanied by comprehensive plan

· Ministers and parliamentarians must lead with salary cuts

The Budget Communication for the 2020/21 fiscal year was the most sobering and historic one for the wrong reasons, in modern Bahamian history. Our nation is facing a record deficit of $1.3B, government revenue is expected to fall by about $1B and government debt is expected to rise to $9.5B while the unemployment rate is projected to exceed 30%. Simply put, we are in an economic crisis and there is an urgent need for a bold vision.

The Democratic National Alliance (DNA) submits that the focus of the new budget ought to be the mitigation of the projected 15-19% contraction of the Bahamian economy and the creation of new industries. However, the 2020/21 budget could be described as a crisis management budget with minimal innovative, visionary and revolutionary ideas for a new rejuvenated economy.

It is our belief that in the midst of the current economic crisis we face as a nation, we have a unique opportunity to implement long overdue structural reforms and embark on a real diversification of the economy. The 2020/21 budget like previous budgets was light on revolutionary reforms on progressive taxation, food security, energy security and the management of natural resources. The budget communication was short sighted and fails to lay the foundation for a New Bahamas. Our additional observations are noted below:

· While the budget is entitled Resilient Bahamas: A Plan for Restoration, there was hardly a mention of initiatives aimed at strengthening our nation’s resilience to external shocks. It is disappointing that the restoration efforts for Abaco and Grand Bahama seem to have been rolled into the COVID-19 response. There remains no publicized restoration plan for the devastated islands.

· The budget has been prepared prior to the submission of a comprehensive plan by the newly formed Economic Recovery Committee which launched a 7-week public engagement plan not long ago. It is unclear how their findings or recommendations will impact an approved budget.

· We applaud the government’s decision not to increase taxes or reduce the public service at this time as recommended by the DNA. However, details of the proposed introduction of new fees or increase in existing fees by SOEs must be disclosed. Further, the process surrounding retirements and expiring contracts must be fair, equitable, dignified and objective; not selective.

· Youth unemployment was over 20% prior to Hurricane Dorian and COVID-19. Our young people are struggling to make ends meet and are often dealt the proverbial bad end of the stick. It was disappointing that the communication failed to outline an initiative specifically tailored to tackling youth unemployment in the upcoming fiscal year.

· Bahamians welcomed the announcement that the food budget for parliamentarians has been eliminated after a significant increase in the previous fiscal year. We also noted that the red plates assigned to Ministers in addition to the blue plates has been eliminated albeit many did not know they had red plates in the first place. We maintain that these measures do not go far enough and our political leaders should lead by example and set the tone by taking salary cuts as we have seen in other nations.

· The increase in allocation to Small and Medium Sized Enterprises (SMEs) is long overdue. However, this allocation should be accompanied by a more comprehensive plan for the SME sector which consolidates the various government agencies which target SMEs and deliberately targets key industries for job expansion and economic diversification.

· The narrative on State Owned Enterprises (SOEs) was weak and similar to previous pronouncements by successive administrations. With annual allocation of approximately $400M to SOEs over the years, we have seen no real push or commitment to the reform or restructuring of these entities. The most recent announcement was unconvincing and lacking a roadmap to address this albatross on the necks of taxpayers.

· The measures directed at the agricultural industry in terms of 25% duty reduction, $1.6M in food security and $9M for innovative projects are simply inadequate for a nation that imports over 90% of what it consumes with total imports valued at $3.5B in 2018.

· Tax relief for businesses and the extension of tax concessions for Abaco and Grand Bahama are appropriate in the circumstances. It is unknown how impactful this will be in the face of subdued demand for goods and services. The reality is that this relief may be coming too late for businesses that have already closed or are in the process of closing.

· The 22% increase in the allocation to Social Services from $49M to $60M must be considered in the context of an expected 30 – 50% unemployment rate. With unemployment projected to triple or quadruple, it seems logical to anticipate a significant increase in the demand for government assistance. The budget seems to miss this fact.

The 2020/21 budget projects over $1.3B in borrowing by the government. There is no free lunch – current and successive generations of Bahamians will have to repay our mounting debt. We maintain that such a major borrowing exercise and historical $1.3B deficit should result in the creation of new industries, entrepreneurs and sustainable jobs. We cannot afford to squander the opportunities presented by this crisis.

While Hurricane Dorian and COVID-19 could not have been predicted, the policies and oversight of successive administrations have contributed to the precarious fiscal position we find ourselves in today. We are seeing the results of years of poor management of government finances coupled with failure to implement policies that encourage diversification, productivity, efficiency and the economic empowerment of our people. The proverbial chickens have simply come home to roost.

Arinthia S. Komolafe


Democratic National Alliance

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