We think that the Minister of Finance Peter Turnquest is lost in the midst of this crisis. We think that the Central Bank is not being aggressive enough, much too passive. We asked for advice on the subject and here is the advice we got
A limited fiscal response to COVID 19 would not prevent the Bahamian economy from going into a recession and possibly a depression as there is no guarantee that global economy would automatically rebound from this shock. It is far more likely that the recovery would be long and drawn out like the financial shock of 2008 which at the onset of COVID 19 was still being felt in The Bahamas.
The measures announced by the Government puts very little cash in the hands of Bahamian businesses and citizens. More worrisome is that many of the measures have no basis in legislation, creating an environment for misuse and misappropriation of funds.
Legislation is needed to:
i. To support the payment of unemployment benefit to self -employed persons. The expansion of the programme is welcome, and its effectiveness would be increase if it was governed by legislation as this would give persons certainty on eligibility and provide a mechanism to appeal any denial of benefits.
ii. Govern the relationship between the SBDC and financial service providers in the disbursement of the $20 million in loans to Small and Medium Businesses. The SBDC role as a wholesale funder for financial institution poses certain risks which should not be ignored, especially as there is no standard protocol in place for the adjudication of credit to the various businesses.
iii. To allow large hotels and businesses to pay unemployment benefits and then be reimbursed by NIB/ Government. For this to happen would constitute a loan to NIB/the Government by the private sector and this programme, if the National Insurance Board follows through on the Prime Minister’s encouragement, needs to be treated as a loan to the Government, with the appropriate legislation, House of Assembly approval and documentation.
iv. Put into law the Business Licence and VAT deferral and credit programme. This programme which does not put cash in the hand of businesses something which they desperately needed. Businesses need cash to pay expenses to allow them to operate and employee expense is just one of these expenses. It is likely that 25% of these businesses which are predominantly in the distribution sector would not return without cash support. A better structured programme would allow these businesses to trade the ability to defer or offset any tax for cash and would provide those businesses with an extended repayment cycle measure in years not months.
A more comprehensive solution is needed.
Monetary and Banking Policy
The Discount Rate and Prime Rate needs to be reduced dramatically. Neither the Prime Rate nor the Discount Rate have any real meaning in the domestic economy. They only serve a reference point for Government debt. At the current levels they are artificially increasing the cost of Government debt. A reduction would give the Government the head room it desperately needs to put resources in the economy.
Legislation is needed to ensure that all financial institutions offer the same level of concessions to borrowers impacted by the COVID 19 virus. One financial institution is already on record stating that it would offer no programme but treat borrowers on case by case basis. This is unacceptable and instead all borrowers should be afforded a six-month holiday on principal and interest payments. Interest should not be capitalized but deferred until the principal is fully repaid. In addition, all fees should be waived including those fees for online banking and late payments.
The banks in The Bahamas are well capitalize and they should commit some of this capital to stave off an economic collapse.
The Government needs to get money to its citizens. The unemployment benefit only provides 50% of base salary and for many families this would put them below the poverty line. The Government should supplement this with an income replacement programme. A potential source of this payment could by the various IDB loans already approved by Parliament, but which projects are not being executed because of the indifference of the Government.
The fact that the Government has been unable to execute its IDB loan programme has been highlighted and many of the projects which are funded are now subject to cancellation. The Government should restructure these loans into a single facility ($50 million) and use this facility to purchase critical medical equipment for the fight against COVID 19 and provide cash to its citizens impacted by COVID 19.
The sole focus of the Government should be on maintaining the level of demand in the economy. This is accomplished by putting money into the economy.