By: Candia Dames

24 January 2006

Public debt in the near term will likely increase before it decreases because the government will have to spend money to put in place infrastructure to support a growing economy, Minister of State for Finance James Smith said on Monday.

"We are likely to witness in government financing over the next few years what the economists call a J-curve effect in terms of the deficit," said Minister Smith, who was addressing the annual Bahamas Business Outlook Seminar at the Wyndham Nassau Resort.

"If we are to do the counterpart funding for Atlantis or for Baha Mar, the corporations and the government are going to have to spend some huge sums, sums that may not be available from local resources so we may even have to borrow. So you’ll see, I think, an expansion in the level of government debt that would later on, I believe, begin to adjust itself."

The Central Bank of The Bahamas reported recently that the National Debt now stands at around $2.7 billion.

"The government has been involved in a sustained effort to provide more resources to meet the growing public sector demand for improved health and education services; the need for heightened and more efficient security services; the expansion of social welfare and youth programmes as well as the provision of new and improved infrastructure facilities," Minister Smith said.

"More importantly, the overall strategic development plan for The Bahamas appears to be unfolding as it should."

He noted that there are currently underway, multimillion-dollar projects throughout the country.

Minister Smith said this is the time to seize the opportunities that are becoming available and to consolidate any gains by re-investing in the Bahamian economy as opposed to over-expending in consumption.

"Our major macroeconomic indicators over the past year are, for the most part, reflecting favourable positive trends," he said.

"Major foreign direct investment projects are in various stages of implementation and if brought fully to fruition, we could expect expanded opportunities for growth and employment in the local economy for years to come."

Noting that for the second consecutive year, The Bahamas experienced moderate growth in the local economy, Minister smith said it would appear that the country may be entering a period of sustained growth and development which could only be under-girded by the expected continued growth in the U.S. economy and the continuation of the low inflationary rate of 2 percent in The Bahamas.

He said that the economic outlook in the near term is heavily dependent upon the performance of the U.S. economy on the one hand, and the absence of any global catastrophes and or natural disasters on the other.

The minister also reported that the tourism sector recovered quickly following hurricanes Frances, Jeanne and Wilma and he said that arrivals in 2005 were 2.1 percent above 2004, when the country hit the five-million visitor mark.

"We could expect more gains to our tourism sector in the near future as a result of upbeat projects for the United States economy," Minister Smith.

"It should also be noted that the stabilization of oil prices could mean that there would be no need for further downward adjustments in the global tourist market."

Over the medium-term, he said there is expected to be an increase in the stock of hotel rooms, more diversity to the tourism product and more effective marketing of The Bahamas as the destination of choice for the value-conscious traveler.

"In the absence of any natural or man-made disasters, we could look forward to healthy increases in both stopover and cruise ship visitors throughout 2006," he said.

Pointing to the seminar’s theme "Creating Successful Public and Private Partnerships", Minister Smith said in order to remain competitive, the country would need increased collaboration between the government and the private sector.

"We are acutely aware that one of our main challenges going forward is how to maintain a leadership position in the face of the creeping globalization movement which is insisting on the move to freer markets; the transformation of digital economies; and the reduction of constraints on the movement of both capital and labour," he said.