10 Feb Interview with Mr. Kevin Turnquest, Deputy Prime Minister & Minister of Finance, Bahamas
BF: With the fact of this being our first meeting in your beautiful country we would like to have an insight into the most accurate picture of the Bahamian economy and the governments fiscal strategy as it relates to the current Fiscal Strategy Report (FSR). As minister of finance, can you please provide us a deep dive into the current economic outlook of the country?
MINISTER: Leading into this year we have made significant strides toward fiscal consolidation, driving our deficit to GDP down from 5 percent in 2017 towards 1 percent this year. As a result of the hurricane we had a major setback. Last year we introduced our fiscal responsibility legislation that mandated our deficit to GDP not exceed 5 percent. Because of the hurricane we had to make some adjustments so we’ll be going to parliament soon to realign our objective and account for the loss of revenue caused by the two major islands coming off line. We estimate we will lose 15-18 percent of our GDP. Also, we will incur expenses to address the need to rebuild infrastructure and take care of social costs. We estimate our deficit will grow this year 300 million and end up around 5.5 percent deficit to GDP. We need to bear in mind that this was an extraordinary event, the hurricane was the strongest in the region in history. We have to be mindful of our location and its risk, but these things tend to be one-off, generational occurrences. So we hope and pray we can return to our fiscal consolidation targets. We project it will take us five years to reach our 0.5 percent target. Our major economic driver remains untouched. New Providence accounts for about 80 percent of our economic activity. The tourism sector is our main driver and is performing very well. Our financial services center continues to maintain despite pressures. The islands to the south continue to maintain and pick up the slack of the damaged region. So we haven’t lost business, it has shifted. We think we will be back on track in the next year.
BF: What details can you share with our readership about the initiatives and communication efforts spearheaded by the government to attract the international community in to invest?
MINISTER: First we must go to the market and explain that we are a chain of 700 islands, 15 of which are populated significantly. So we have had some damage, but the rest of the country is intact and pristine with regard to infrastructure and natural beauty. The opportunity to make a profit is still high and attractive. We need to explain our value proposition, part of which is our location, which is ideal. We provide a lot of synergy and value for investors who want to reach markets within reasonable periods of time. We have first world communications available. We are politically and economically stable. Our dollar is on par with the US. So we are a good option for those interested in international trade.
BF: The Bahamas has continued to attract the largest foreign direct investment (FDI) inflows of all 28 small island developing states (SIDS). And in June of last year the country saw a 42% increase in FDI equity inflows. Can you share your views on the importance of FDI for the country?
MINISTER: We are very interested in and recognise the importance of development of our country, and because of the small population and the size and distribution of the islands we know we need FDI to develop. We are a consuming nation, we import most of what we consume because of our limited natural resources. FDI is necessary for our growth. It puts pressure on our balance of payments and so we have to be creative about export and about services which leads us to tourism. To facilitate that we need investment in that sector. Our climate and environment are attractive to investors and we’ve proven we can provide the support to investors that allows them to operate without impediments. We have done our part as a state to promote the industry in partnership with investors to ensure their success. We have benefitted from that and the partnership has been good for both sides. It’s a valuable story for investors, we see the Bahamas as not just a place to come and play but as a place to invest and make money. It’s a win-win situation.
BF: Recently Mrs Greenslade, high commissioner for the Commonwealth of The Bahamas to the UK, signed the EPA on 27 November 2019 at The Bahamas High Commission in London. Trade between The Bahamas and the UK increased by 138 percent in 2018, growing from $21.2 million in 2017 to $50.6 million in 2018. And the current Prime Minister is adamant to prioritise historic relations with commonwealth nations. As someone deeply involved in asserting and strengthening international bilateral relationships.In what direction do you wish to see the Bahamas-UK bilateral relations today move towards, diplomatically and economically?
MINISTER: I haven’t broken that down but I imagine tourism was a major part of that. The UK market is becoming more interesting to us as the UK redefines its role. With the high commissioner coming we hope we will have the opportunity to reach into the UK and develop investments and tourism even more. We’re very grateful to the UK government for seeing us as a valuable partner and for extending the diplomatic relationship. We are happy the direct relationship is being restored and believe it will benefit both countries. We still have strong feelings for the UK, we treasure the relationship from an educational and business perspective and we hope to see more investment from the UK as well as to export our services to the UK.
BF: I read that you met high level officials of the OECD last year in regards to harmonisation f fiscal regulations in Uruguay, I liked your speech. It shows the implementation of regulations and legislation is keeping up with international standards. Can you talk about these recent developments?
MINISTER: We have been on a rollercoaster since 2000 when we introduced the first sweeping legislation to address the money laundering concerns from that period. That has evolved beyond those concerns to tax considerations which have become problematic for many developing countries with regard to cross-border considerations. The expectations and pressure on small states to report is a significant burden and the cost/benefit becomes a major regulatory challenge for us and our clients. We do recognise our position and that we have a role and responsibility in the international system to make sure we implement laws to protect the global financial system, and we put a whole new suite of legislation in place last year to counter terrorist financing and make tax offences criminal offences. We have signed on to a number of conventions and agreements for the exchange of tax information, including the automatic exchange of information with the OECD and individual countries, and we have complied with all those agreements. We are moving into a new era where individual countries are taking their own action, which is a bit of a concern. For us to be mindful of the peculiarities of every country is daunting. We might have to dedicate specific resources to each country and the cost of that is not feasible in a country like ours. That impetus behind the OECD and EU rules was to put rules in place as a block, which makes it easier to administer. If certain countries have a need they should go to the block and negotiate a change, but to expect a country like ours to be the police for each separate country is a burden. We do try to be as cooperative as possible with our partners because we do respect our role and are proud of our solid reputation. When you look at the findings in the Bahamas vs. the EU you will see the issues aren’t coming from here. We manage the money here, but it’s not invested here, it’s reinvested back into the developed world through stocks, bonds and investments, for which we take a fee. There is a perception the money is being hidden offshore, but that’s not true. The money goes back into the countries it comes from and the taxes are paid in those countries. It’s difficult for us, because we are asked to prove a negative, that’s our challenge. We are being as aggressive as possible in addressing that. I have said I don’t like the offshore/onshore categorisations. There is really no such thing because with the elimination of preferences for international investment we treat international investors the same as local investors. We need to educate government and international leaders but more importantly tax payers in these jurisdictions about how that benefits them.
BF: Complementary to Bahamas efforts in fortifying transparency and ease of doing business are the initiatives that encompass the Digital Bahamas Framework. It was you Minister who unveiled the Central Banks digital currency project in 2018, with comments also made to applications for blockchain technology entering government services. What current developments can you share with us around this topic?
MINISTER: The central bank of the Bahamas introduced the sand dollar this month. The idea is to promote financial inclusion. Some of our islands lack proper brick and mortar banks due to cost. Many of our island are unbanked which results in security risk and limitations to trade domestically and internationally. If a boutique hotel on one of islands wants to book tourists and can’t take the money, that’s a problem. We want to make it easier for people to conduct trade and hope that will expand the economy in rural areas. The sand dollar is a digital representation of the Bahamian dollar. It’s backed by the state, it’s just in electronic form. There is no need to physically handle cash. We believe this innovation will result in tangible benefits to our communities and promote the use of technology in financial transactions and in the wider e-commerce space. We hope our population will find innovative ways to exploit the assets found on the islands. We don’t see it at the moment as a currency that will be traded. We have an exchange control regime and we anticipate maintaining that for now. That regime allows the central bank to manage the balance of payments. We import most of what we consume so we need foreign currency and we always need a reserve of foreign currency so we can purchase things like food and fuel. As we get our fiscal house in order maybe we will consider trading the sand dollar. We see crypto currencies the same way we see other currencies. We are mindful of the risks and we use caution, but there is no restriction on their use domestically. We need to be responsive to innovation as global players. We are developing legislation that will be best in class and globally innovative, because not many locations have that in this space and of those that have tried many have failed. We are creating, in consultation with a number of jurisdictions and leading experts, innovative legislation to regulate the digital asset space, positioning the Bahamas as a global leader in that area. We believe that will be attractive to crypto currency exchanges and also crypto currency banks. We believe that will create new opportunities here.
BF: What is your final message for our readers?
MINISTER: The Bahamas continues to be open for business and a stable country with a stable government, both in terms of investment and economically. We are innovative and flexible, meaning that individuals interested in investing here can come in and speak with us about their needs and we can adapt to those needs. We have a cadre of experienced professionals, from legal to financial to economic to scientific, that people can take advantage of. Despite the climate crisis that is happening globally, the Bahamas remains an attractive destination because of its geography which provides opportunities and also risk mitigation for investors. We are primarily focused on tourism but financial services is a significant part of our economy and we are committed international partners in terms of regulation and transparency and cooperation with international partners. We are committed to the highest degree of integrity and professionalism. We believe the value proposition we offer in terms of regulation and expertise and location and innovation gives us an advantage many jurisdictions don’t have. Our location provides access for source markets as well as destination markets and ease of access in communication because of the time zone. As the world becomes more unsettled with regard to geopolitics, the Bahamas offers a unique element of stability that many families have recognised. Our home office business is picking up dramatically as a result. Wealth management and estate planning are still very in demand and we have the expertise for that here. In terms of research and manufacturing we have a growing manufacturing base. Grand Bahama is our industrial capital and we have pharmaceutical companies and oil bunkering there, there is opportunity for manufacturing and logistics. We have the largest container port in deep water harbour in this region, which connects the world via sea lanes. We are managing our fiscal challenges and are disciplined and intentional about ensuring we maintain our reputation as a clean, quality jurisdiction. We have very little bureaucracy and a great deal of predictability.