The International Monetary Fund (IMF), in their recent Article IV report on our country, noted that we have a bit of bloat in the public sector. Bloat to the tune of $70 million annually to our civil servants. The IMF further noted that we could save $200 million ANNUALLY via downsizing our public service as well as pension reform and reducing subsidies to state-owned corporations.
Tackling any of the three recommendations (downsizing, pension reform and subsidy reduction) is a monumental task, let alone hammering away at all three at once.
So let’s take a look at each one. Note that I am not an economist; however, I do think we can parse out some discourse based on common sense.
The IMF recommended reducing the civil service wage bill back to 2015-2016 levels “at most.” That is of course before the pre-election free-for-all hiring that happened. Even still, that level of employment of civil servants is incredibly high.
However, austerity and removing what, at the end of the day, are gainfully employed Bahamians in an economy that is already hungry for jobs can have serious negative impacts. By cutting, the government saves money that can be allocated to paying off debt and funding job-building programs. However, if we cut $70 million dollars’ worth of civil servants then that’s $70 million that is not being spent by them in shops, restaurants and exorbitant bank fees. (That last one is a joke… but not really.)
I think the government is doing the right thing, currently, by implementing a hiring freeze as well as reducing temporary workers, etc. But, if an employment cut that deep is necessary, and I do believe it is necessary, then there needs to be safeguards in place to help the private sector pick up the now-unemployed workers.
Safeguards like providing tax incentives (since the government no longer has to pay those people it does not need as much from companies gainfully employing them), investing in entrepreneurship programs and education (so more jobs, meaningful jobs, can be created) and facilitating work programs as it has done before.
But that’s still a chicken-and-egg scenario. We don’t have a lot of money to mobilize such incentives until we cut back on public-sector wages. It will not be easy.
Pension reform is another major way The Bahamas will be able to save a lot of money going forward. It’s an open secret that many public servant pensions are on the fast track to going broke. Bahamas Power & Light’s workers’ pension, for example, has a $110 million deficit. That’s just one public corporation’s pension out of many.
Going back to the BPL example, the Bahamas Electrical Workers Union even recognizes that their current pension systems is untenable and have agreed in principal, back as early as 2014, that employees need to actually pay into the system (novel idea). A problem recognized – but never addressed.
This goes to the root of many of our country’s problems: the bashfulness to make tough decisions and follow through.
The final point deals with scaling back subsidies for our many publicly held corporations. But subsidies allow BPL, Water & Sewerage, BahamasAir, etc. to price below cost. Many feel our bills are already too high, removing their subsidies and forcing them to charge market price would literally lead to riots.
The idea of privatization is tempting to many. But how to go about it when what would essentially happen is they would be granted defacto monopolies with decades of a head start against competition? How would we prevent the newly freed corporations from charging what they need to get by? Price control? That would send them to bankruptcy faster than lighting strikes cuts off BEC’s power.
There needs to be a scaling back of subsidies with a mandate on these public entities to become more efficient (before privatization if that is the choice). This is only achieved by making tough decisions. Tough decisions which we have proven we are not good at making.
But we’re at the point now when we have to make these decisions. With projections of debt being 73.3 per cent of GDP in fiscal year 2018 we are out of time. We’ve had decades of “gimmies” and “all for me” mentality across the political spectrum. We must demand a new way forward – unafraid of the short-term sting. Sometimes you must face a few stings to get to the honey.