Despite reports of reduced ratio of foreign reserves, the Government boasts over $1 billion in foreign currency because of large-scale foreign investment in the country’s capital stock.
Foreign direct investment creates thousands of jobs and provides opportunities for domestic entrepreneurs to create viable enterprises. The $1 billion in FDI represents almost 2,000 new jobs and numerous opportunities for Bahamian entrepreneurs.
The current GDP of The Bahamas exceeds $3 billion, 60 per cent of which comes from tourism and 15 per cent from financial services.
The economy is such that foreign exchange earnings of tourism and financial-services sectors, and other international services sectors, provide the foreign exchange that makes the open economy operate.
Foreign reserves allow the Bahamian dollar to be on par with the U.S. dollar. Foreign reserves underpin the entire financial system and thus the strength of the economy.
“We are making every effort to protect and nurture this competitiveness,” said Minister of Financial Services and Investments Allyson Maynard-Gibson on Thursday. “We are trying to control costs and increase productivity. Firstly to ensure that our foreign-exchange-earning sectors can compete, and secondly, to ensure that the level of productivity of these sectors are adequate to continue attracting investment.”
Minister Maynard-Gibson was addressing members of the International Women’s Forum in Johannesburg, South Africa, in her role as forum director.
The Central Bank of The Bahamas is responsible for maintaining a minimum level of foreign reserves required to cover adequate level of goods and services imports and to enable conversion of foreign direct investment in the event an investor chooses to repatriate investment.
According to Minister Maynard-Gibson, the trends of three decades revealed a deteriorating situation with respect to external and internal debt and with the exception of the boom years of 1997-1999, a dangerously reduced ratio of foreign reserves to money supply and credit.
Figures from an IMF 2001 Article IV country consultation show the average level of reserves in The Bahamas ranged between one month (1996) and 1.7 months (1999) of import cover, falling to 1.4 months in 2000.
Alerting forum members to the importance of effective management and control of public finances, Minister Maynard-Gibson said the design and firm implementation of a good financial management system is critical for the stability of economic performance and social development.
In 2002-3, the national budget will be about $1,200 million. Of this amount, $175 million will be used to pay interest and repayment of national debt.
Reduced imports in the last quarter of 2001-2002 was largely due to a credit squeeze resulting from an annual decline of more than $100 million in customs duties, stamp tax and inefficiencies in revenue collections
Approximately 60 per cent of government revenue was generated in fiscal 2001-02. A large budget deficit resulted and was partially financed by a foreign currency loan of US$125 million, a move that would prevent drainage of reserves below acceptable levels.
“Inasmuch as WTO, FTAA and OECD initiatives will reduce the likelihood that The Bahamas can maintain its current heavy dependence on import duties and stamp tax on imports,” the Minister said, “it is likely that The Bahamas will need to consider alternative tax regimes in the coming years. Any change in the current revenue system will need to be one that increases the attractiveness of the country for FDI and Bahamian entrepreneurship.”
Net merchandise trade fell from $1.313 billion in 2000 to $998 million in 2001. This decline of is due almost entirely to fewer imports.
At an average tariff rate of 35 per cent, government revenue fell by more than $100 million. The minister of state for finance is predicting a more than a $100-million deficit for fiscal year 2002-2003.
Presenting several ways to rejuvenate the economy, Minister Maynard-Gibson suggested:
* Seeking increased tourist expenditure by controlling costs and enhancing quality tourist services.
* Promoting large foreign capital investment projects over $1 billion of which are on the drawing board.
* Carefully examining the various programmes and facilities in place to encourage Bahamian entrepreneurs.
*Carefully monitoring and controlling expenditure pressures on the national budget.
* Making every effort to maximise revenues from the existing system of taxation.
* Ensuring that public expenditure and concessions maximise Bahamian entrepreneurship.
* Development of The Bahamas as a “blue chip, well regulated and cooperative” financial centre.
By Lisa Albury, The Nassau Guardian
