Into the fiscal abyss?

Posted: November 28, 2012 in Bermuda, bermuda politics
Tags: , , , ,

I don’t pretend for a moment to be an economist but you certainly don’t need to be one to appreciate that Bermuda’s economy is in bad shape. Whether you blame the global recession or the Government, it’s getting worse and shows no signs of recovery into 2013.

According to Bob Stewart, writing in today’s Bermuda Sun, the Island could well be heading towards bankruptcy. Could we really become another Greece? Mr. Stewart, who used to run the Shell Company in Bermuda and knows a lot more about economics than you or I, says that the failing economy and massive debt means Government simply won’t be able to pay for things like seniors’ healthcare and Government pensions. With life expectancy increasing, medical insurance and treatment costs going through the roof, the working population decreasing, and wages fast losing pace with inflation, the math doesn’t add up. It’s simply unsustainable.

Writes Stewart: “There are two major government obligations for which adequate money has not been set aside. These are medical insurance (mainly Future Care), and government pension plans of which there are two major schemes. The first is the Social Security Fund, and the second is the Public Service Superannuation Fund. To meet their obligations, without calling on future tax revenue both of these funds should be funded at around the 100 per cent level. Both are massively underfunded – around 35 per cent for each.

“The total for such unfunded retirement liabilities is somewhere around $1.5 billion which is in addition to the government debt of around $1.5 billion. In other words, Bermuda is in debt to the tune of $3 billion or around $60,000 per Bermudian, including children.”

Even if Stewart is only half right, those are figures that should scare the living daylights out of every voter. His column doesn’t offer any solutions and it seems to me neither the PLP or the OBA really know how to turn this around. Indeed it would be naive to think a change of Government alone will bring about a miraculous change of fortune.

As always there’s lots of nebulous talk about using “growing government revenues to reduce debt and restore and strengthen social programmes” (OBA) and revitalising tourism but it doesn’t address the tough and unpopular austerity measures that are likely to be needed. Funnily, neither party wants to talk about this when election votes are at stake.

As usual, both parties are busy wasting everybody’s time blaming and bickering with each other. It really doesn’t matter at this stage who is to blame. Either through bad luck or poor planning – take your pick – increased Government spending has coincided with the worst recession in decades.

The PLP’s Christopher Famous, also writing in the Sun today, says what the OBA calls debt should be viewed as development not debt. He has a point and lists a number of projects that have unquestionably improved the quality of life for many Bermudians. As he says, every business or Government borrows money for expansion or big-ticket projects. The problem is that there is responsible risk-assessed debt and irresponsible reckless debt. We have certainly had too much of the latter in recent years.

Whatever the reason, the debt isn’t going away. Bermuda has always survived on its wits and if it can’t figure out a way to attract the overseas investment it sorely needs, then its not just a fiscal cliff we’re heading for but an abyss. And if you think our social problems are bad now, they’re going to get a whole lot worse if that scenario happens.

It would be nice to think that our politicians could put aside party politics and petty differences and work together. But then that’s about as likely as snow at Christmas.


  1. Christian says:

    Borrowing to build Berkeley, TCD, Heritage Wharf etc at well over their appraised values isn’t investment. Well, it’s bad investment. That’s why the auditor said she couldn’t match expenditures with asset values. The hospital was taken off balance sheet as a PPP to hide the borrowing as we were at the debt ceiling, the result of that is that Government gave up their ability to borrow at lower interest rates due to their sovereign rating and the taxpayers will end up paying much more over time, meaning we can’t spend on other social services. It will all come due eventually. Government must live within its means. The UBP economy carried the PLP into the mid 2000s, then, preceding the ‘global recession’ the PLP started to ramp up debt. So it wasn’t taken out as a response to contraction as stimulus, it was taken out due to a lack of fiscal discipline and widespread overspending and has in fact weakend Government’s ability to make investments and expand the social safety net.

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