Finance Minister: $930 Million To Be “Injected”

The projects approved by the Government in “which there is high confidence of shovels in the ground” combine to make a total of $930 million to be “injected over the next one to three years,” Finance Minister Bob Richards said during today’s [Feb 20] Budget statement.

The Minister listed those projects as St. Regis-St. George’s, Ritz Reserve, Phase 2 Hamilton Princess, Sinky Bay Beach, Pink Beach, Ariel Sands, Airport, and the America’s Cup.

Minister Richards said, “Tn the run up to the last election the One Bermuda Alliance outlined its strategy to revitalize the Bermuda economy. The Two Track Strategy as it was called, was designed to stimulate the economy on the one hand and control and reduce Government spending on the other.

“We always insisted that such stimulus should and could be achieved without incurring of further Government debt, meaning the principal method of stimulus would have to be inward direct investment from abroad.

“In the two years since the election, the Government has focused on creating the conditions necessary to attract that investment. Mr. Speaker, Table 1 [see below] lists the projects approved by the Government in which there is high confidence of shovels in the ground.

“They total $930 million to be injected over the next one to three years. For an economy whose GDP is about $5 billion, a stimulus of almost $1bn or 20% is massive. ”

“There are a number of questions arising from this massive injection. First, is it for real? Bermudians have heard such promises before. We are confident that these are indeed for real. Second, is it large enough? It is the Government’s judgement that the scale is appropriate. Bermuda has endured an extended recession of six years, much longer than any of our major trading partners.

“The length of Bermuda’s recession, its severity, and the fact that the USA has long since emerged from its recession, strongly supports our long held view that our problem is local and structural, not cyclical.

“If it were cyclical we would have recovered long ago. This implies that any stimulative measures should be stronger than if the problem were cyclical.”

Chart extracted from the 2015 Budget:

Minister Richards continued, “Third, is it too much, will it result in inflation? If it is too much then the resultant inflation would render our economy too expensive and less competitive in the intermediate term, thereby defeating the whole purpose of the exercise.

“This is indeed a risk. However, the statistics that we do have show there is a large pool of unemployed people — over three thousand — that would have to be soaked up before we are in danger of over stretching our resources.

“Then there is the spare capacity that has been left behind by people who have left the island. There are many empty residential units as well as office and retail space in Hamilton. All this spare capacity would have to be used up before significant upward pressure on prices would occur. Add to that, the fact that inflation imported from abroad is muted, bolsters our confidence that the inflationary effect from this stimulus will be minimal.

“Fourth, won’t this just be a temporary blip, after which the economy will slip back into recession? The answer to that lies in the nature of the stimulus. All but one of the projects are for-profit — commercial ventures.

“From the investors’ point of view, success means these investments in hotels must be operationally profitable. This implies a long term commitment to success in Bermuda tourism and therefore long term job opportunities on the Island.

“The hosting of the America’s Cup is a gigantic opportunity to globally press the “reset button” on the Bermuda hospitality brand. We live in a branded world and we have allowed our brand to languish.

“The success of Bermuda’s re-branding in tourism will have a long term benefit to our hospitality product in the future. Even the new air terminal, as a P3 project, has the profit element in it and this too will enhance the Bermuda brand both in hospitality and international business in the future.”

“This list of projects, representing inward direct investment, is the essence of our stimulus package. In two years this Government has changed the reputation of Bermuda as being unfriendly to investors to an investor friendly environment where global businesses feel comfortable to invest in our country again.

“These projects comply with the conditions we laid down from the start, and that is they should add to our productive infrastructure thereby creating short term as well as long term jobs; and that they should not be the result of deficit financing by the Government,” added the Minister.

In his initial response to the Budget, Opposition Leader Marc Bean mentioned this aspect of the Budget speech, saying: “They’re focusing on a growth strategy that, in a lot of ways, is based on a fairy tale and has no concrete reality behind it.

“For instance, they’re naming different projects in the hospitality industry that’s supposed to inject $930 million into the economy but, outside of the America’s Cup and the Greens’ expansion at Hamilton Princess, the other five or six or maybe seven projects are merely projects on paper,” added Mr. Bean.

View all our coverage of the 2015 Budget here and our live blog here.

#2015Budget #BermudaGovernment

Category: All, News, Politics