Delivering a speech that was one of “cautious optimism,” the Minister of State in the Ministry of Finance James Smith brought a message of hope and promised help, while revealing that a staggering Bahamian economy is expected to grow by 2.9 percent next year.
This revelation, which was made during night two of the Progressive Liberal Party’s 47th National Convention, undoubtedly was welcomed by many who have had mounting concerns regarding the future of the economy which is not expected to grow at all this year.
“I think that there are many reasons for cautious optimism, many reasons why we should not be fearful of the immediate future,” said Minister Smith as he addressed delegates at the Wyndham Nassau Resort.
But a leading financial expert close to the government said after the speech that it was perhaps a bit too optimistic and may have given some “false hopes.”
“I hope it grows,” said the analyst, “But from what I’m seeing, the economy cannot grow at 2.9 percent next year because the things that it will take for the economy to grow are just not there, that is, growth in investments – internal or external – and growth in jobs. They’re projecting between a 1.4 and 1.6 percent growth for the next year in the United States . How do we propose to outstrip the growth of the most developed country in the world?”
Other observers, however, praised Minister Smith’s speech calling it the, “right speech at the right time.”
In recent weeks, Prime Minister Perry Christie has said that his cash-strapped government has been further burdened by a $60 million revenue shortfall and he indicated that much of the help that his government promised was being slowed by present economic conditions.
While economic growth is expected, Minister Smith pointed out that the economy in 2002/2003 is weak and this weakness is affecting the inflows of revenues into the Consolidated Fund.
“Even though expenditure is not out of step with the projections in the 2002/03 Budget which the Prime Minister presented in May last, the revenue situation makes it likely that the Bahamas could have a significant fiscal deficit in 2002/03,” he said.
Minister Smith said that the country’s revenue structure is too closely linked to its national economic performance.
“One of the challenges this new PLP Government will face is correcting the revenue structure so that it is less sensitive to severe shortfalls when the economy weakens,” he said. “We need to seriously consider reducing our revenue dependency on customs duties and implementing a revised tax regime which is more equitable to low income earners and which could still yield the level of revenue needed to support our public services.”
While discussing the need for restructuring the tax regime to safeguard the economy, he assured that recovery is in sight from the present economic downturn.
Recovery may be even closer at hand than now appears possible to us in the Bahamas , he said.
“If war in the Middle East can be averted, and international terrorism soundly defeated, I am confident that 2003 could see a firm return to strong and sustainable growth,” Minister Smith said. “For instance, the IMF in its September, 2002 World Economic Outlook, projects growth of 2.9 percent for the Bahamian economy in 2003.
“This is a very important indicator bearing in mind that the IMF has huge information and analytical resources which enables it to make sound judgments and fairly accurate assessments.”
But the cautious part of his speech was also evident, as he pointed to unpredictable external factors that could change the course of any economic outlook.
Minister Smith said the outlook for the coming months is more difficult to assess because of the uncertainties surrounding developments in the external political and economic environment.
“For instance, there is now the very real prospect of war in the Middle East ,” he said. “There are still the fears of international terrorism and the economic cost of enhanced vigilance, and the US economy is still not in a strong recovery phase as is evident from the necessity for the recent interest rate cut by the US Federal Reserve.”
A number of capital projects in the pipeline in New Providence , Grand Bahama and the Family Islands are expected to drive some economic activity in the coming months, he indicated.
Going forward, the country should take this time to be ready to analyze the costs and benefits of these projects; as well as the cost and benefits of concessions, he said.
“While there is a dark cloud of uncertainty pertaining to the next few months, one need only look further ahead to see that the Bahamian economy, as an integral part of the global economy should commence strong recovery during the latter part of 2003,” he said.
By Candia Dames, The Bahama Journal
