Saturday, March 28, 2015

The IMF came to town, and then they left!

The International Monetary Fund (IMF) team visited The Bahamas from March 9–20 to conduct discussions for the 2015 Article IV consultations. Their press release stated several key factors about the current state of The Bahamian economy. Perfunctory duties.

Organizations like the IMF have a duty to compile data and information on the economies of all countries, particularly the financial positions of economies. Their main role is part advisory and part public relations with respect to reporting on activities of one country to their partnering countries. With that being said, it is not unusual for staff reports and consultation reports to be as diplomatic as possible, because negative reports not only affect the country being examined, but the countries that do business with the country under examination.

What is important to state after reading this latest consultation article is that it appeared to be very modest in it's approach, which may seem as if it is couched in diplomatic code, but it said nothing new or provided no special insight into key methods or tools used to bolster any claim made in their assessment.

We would have thought that after all of this time, some more fruit would have been born out by these consultative meetings and assessments. For the mere fact that there are experienced persons sent to conduct them, I'm certain that more information and in detail could have been shared if only on an experienced based factor.

Of course, no one wants to make things up that are not there. So we can only take the reports in the broad strokes they are presented in. Also, coupled with the fact that they can only make assessments on the information provided, we can only suggest that this is what it is and what is said to be getting done is in fact getting done.

Take for example an excerpt of the first notable, if not the obligatory and most repetitive note of these assessments is with regard to structural unemployment and support for SME's:
“The Bahamas faces several challenges in boosting its growth potential. First, it needs to attract sufficient tourist demand to fill the large impending increase in capacity. Second, evidence of significant structural unemployment suggests the existence of impediments to job creation and proper functioning of the labor market. Third, small- and medium-sized enterprises (SMEs) face significant impediments to the growth. Fourth, as noted by the 2015 World Bank Doing Business Indicators, general constraints to investment persist"
Of course, it sounds very sexy, alluring and provocative to suggest these things. But what is strikingly missing, and we hope is born out through another more in depth assessment note, is with regard to the policies being implemented to address these issues and how far is the government with regard to the reforms to address the issues.

The point of the matter is these open ended, blanket and glittering generalities on topics that they are on the one hand supposed to have in depth technical expertise on assessing, but furthermore are supposed to know the mechanics of the way an economy is supposed to work, both large and small is just not cutting it at this stage of the game.

To provide a solution to the SME and unemployment issues The Bahamas faces, the IMF suggested that:
“...the mission urges the authorities to finalize and implement the National Development Plan (NDP), with assistance from the IDB. The NDP would assess the country’s macroeconomic performance, institutions and governance, and propose strategies to accelerate economic, institutional, and social development over the medium term and long run. "
In entertainment terms we would classify this as canned applause. This reverse inductive reasoning from a pre-prepared premise that this would be the solution to the problem of SME underdevelopment and unemployment is a little too thin, for two main reasons.

The first reason is that a plan, within itself, does not solve a problem. What the National Development Plan would address is the initial phase of providing information on the macro-economic potential of The Bahamas, providing that this is in fact the tone and direction that the plan is following.

Thus far we have not heard much about the data and information being collected, collated and analysed that would solve any issue, let alone the structural deficiencies with SME development and unemployment that the IMF assessment report states would be as a result of the finalization of the plan.

Furthermore, the plan needs to be implemented. The execution template, format and personnel need to be in place. So, even before we have the plan completed, we have to have a notion that the plan will, in fact, solve the deficiencies as represented; the plan will have executable initiatives for the deficiencies; and be in fact implemented in an orderly and sustainable manner.

Another seemingly modest approach with regard to detailing the economy of The Bahamas presented in the IMF assessment is in their attempt to make note of the fiscal consolidation efforts underway:
"Commendably, the authorities continue to be on track in implementing their strong fiscal consolidation program to rebuild fiscal buffers eroded in the aftermath of the global crisis and reverse recent significant increases in public debt. The fiscal deficit in FY 2013/14 (July to June) is estimated to have narrowed to 3.3 percent of GDP (from 5.4 percent). The mission commends the authorities for the introduction of a broad-based VAT on January 1, 2015."

What's important to note that while the macro-statistics speak to one particular scenario, equally as important is the methods to which these goals are achieved and if they line up with recent information as presented.

For example, the estimates on the fiscal deficit as estimated are inconsistent with the trajectory of the deficit presented in the mid-term budget and the current economic factors on the ground.

The deficit, as stated in the mid term budget presented in February, 2015 actually increased over the period from the last mid-term budget. The GFS deficit for the mid-term budget presented in February, 2014 was $238 million. The current GFS deficit for the fiscal mid-budget year, 2015 is $273 million. An increase of $35 million.

The reason why highlighting the current estimate provided via the mid-term budget as opposed to using a methodology of using the revised final budget estimates of 2013/2014 and the projected final estimates of 2014/2015, is that one major issue is at play: The opening of the BahaMar Resort.

The BahaMar Resort, when fully opened, will comprise of approximately 30 to 40% of room capacity in our hotel inventory. Without BahaMar being opened, it means that tourism receipts will be weak. With tourism accounting for 60% of gross domestic product, it means that anywhere from 20 to 25% of government revenue will have to be adjusted to account for the budget shortfall as a result.

The BahaMar Resort was scheduled to open on March, 27th, 2015. But that has been delayed to May 1st, 2015 with the expectation that it may not be a full opening for the month of May.

Of course, the IMF mission would have been concluded before the announcement that the opening of BahaMar was delayed. But for them neglecting the possibility that it may be delayed and that the delay may cause significant shortfall is something we should note, very clearly.

Just as important as making provisions for economic activity on the ground to bolster the macro-statistics, the actual method of the fiscal consolidation is also important.

On the one hand, the IMF praises the government with regard to stacking up fiscal buffers. In other terms, stacking up the money in the event of a fiscal collapse brought on as a result of the economic meltdown of 2008. Which means, in short terms, the government has increased their savings efforts for a rainy day.

However, this was not reconciled with the glaring fact that the deficit increased from last year, as previously indicated. So, on the one hand, the IMF says that the deficit decreased and is set to further decrease (not) on the one hand through their projected estimates, but on the other we have made strides in our fiscal consolidation efforts by Suring up fiscal buffers. Something just does not compute.

In addition, how this was done, where the money/savings are stashed and the used methods and if methods used were optimal simply just advances the chains down the field, so to speak. I think most of the Bahamian public are way beyond accepting information based on say-so without measurable verification.

The report goes on to reiterate the same lines from previous conventional wisdoms; i.e., end state owned enterprises, and be mindful of foreign reserve buffers, etc. We can forgo further analysis based on that.

In short, I'm not saying that I like this latest IMF assessment or that I don't like it, but they need to flesh out a few more realistic details with regard to the entire Bahamian economic picture. Doing so helps us all.
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