BAHAMAS BUDGET PRESENTATION CONFIRMS GRIM OUTLOOK

UNCLAS SECTION 01 OF 02 NASSAU 000344

STATE FOR WHA/CAR AND EB
SANDO DOMINGO FOR USFCS

SIPDIS

E.O. 12958: N/A
TAGS: BEXP ETRD ECON BF
SUBJECT: BAHAMAS BUDGET PRESENTATION CONFIRMS GRIM OUTLOOK


1. (U) SUMMARY: Prime Minister Ingraham confirmed grim expectations
for economic performance during his annual budget report May 27. He
promised to decrease government recurrent expenditure in the coming
fiscal year but said he does not expect a recovery before 2012. END
SUMMARY.

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ECONOMY CONTRACTING, PUBLIC
DEBT RISING
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2. (U) In his annual budget presentation before the national
assembly, PM Ingraham reported that the International Monetary Fund
(IMF) has projected negative real growth for 2009 and 2010 and
positive real growth thereafter. Given the current GDP report, and
a real GDP growth rate of negative 1.7 per cent, the government has
accepted these projections. According to PM Ingraham, the economy
was adversely affected by external economic pressures which lead to
decreased foreign direct investment and government revenues -- a
shortfall of $260 million -- as well as contracted tourism and
private consumption. With the expected deficit at $422 million by
month's end the GCOB expects what it recognizes as an unsustainable
level of government debt to GDP ratio of 43.2 per cent by June of
next year.

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GCOB CUTTING COSTS, INCREASING
CAPITAL SPENDING
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3. (U) In the face of this crisis the GCOB has chosen to take
measures to reduce recurrent expenditures. With the exception of
the public service and health sector, public agencies were given
allotments 6 per cent lower than the previous fiscal period. A
moratorium has been placed on government hiring and vacated
positions will not be filled. The travel budget has been revamped
to exclude international conferences and other non-essential trips.
Finally, the GCOB has chosen to forego medical insurance for
teachers, doctors and nurses in the coming fiscal year.


4. (U) Conversely, in a nod toward employment, capital spending has
been increased to $255 million to complete the major works projects
the government announced in November 2008 to counteract the effects
of the global downturn. Included in these are the New Providence
road project, the Nassau Harbor project, the revitalization of
downtown Nassau, including the movement of the port to Arawak Cay
and the construction of the Straw Market, renovation and completion
of the court buildings, and the continuation of the redevelopment of
Lynden Pindling International Airport, the main international
gateway to The Bahamas. Notwithstanding the fiscal deficit, and
with the exception of a minor rate change, the GCOB will not be
introducing any new taxes and is, rather, reducing some tariffs.
This move ensures that similar products face the same rate. For
example the rate on computer monitors imported separately is being
reduced from 10 per cent to 'free' to align it with the rate on
monitors imported with a computer.

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SEEKS INCREASED FINANCIAL
TRANSPARENCY, REVENUE
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5. (U) Finally, the PM reported that the GCOB will sign the required
Tax Information Exchange Agreements (TIEA's),beginning with Canada,
in an effort to protect the financial industry. Also, they will be
taking steps to reform government agencies beginning with Business
License and the Department of Customs. The efforts will be targeted
to modernizing revenue collection and enhancing efficiency of
essential government services.


6. (U) In a press conference held later in the day, leader of the
opposition Perry Christie criticized the budget as lacking
creativity and giving no clear direction for the way forward. He
added that he was especially disquieted with the government's
decision to eliminate the health insurances of public servants.
Some of his concerns were echoed by outgoing Bahamas Chamber of
Commerce chief, Dionisio D'Aguilar, who said the budget lacked any
plans for foreign direct investment in non-tourism related fields.
Contrary to Christie's sentiments, the heads of the nurses' union
and teachers' union confirmed that they were informed and agreed
with the decision to drop their health insurances especially in
light of the current economic circumstances.

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COMMENT
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7. (U) Though the budget report gives a grim economic outlook for
the near term the GCOB is hopeful that their plan will keep the

NASSAU 00000344 002 OF 002


Bahamian economy afloat until the world economy turns around. Absent
from the communication, however, were other private revenue
generating projects or any plan to diversify the economy. In
particular, no mention was made of the long-delayed LNG project.
The PM did give a brief overview of the privatization of public
corporations, more specifically Bahamas Telecommunications
Corporation. But no details were provided about the sale of other
hemorrhaging public corporations, such as the Broadcasting
Corporation of the Bahamas.

ZUNIGA-BROWN