Peter Everson: "Given the difficulties facing the Bermuda economy, the number one task  for the upcoming year is to get as many Bermudians back to work as  possible and at the same time increase the total number of jobs in the  economy." *File photo
Peter Everson: "Given the difficulties facing the Bermuda economy, the number one task for the upcoming year is to get as many Bermudians back to work as possible and at the same time increase the total number of jobs in the economy." *File photo

FRIDAY, FEB. 24: When the economic downturn hit Bermuda in 2008, the economy was poorly positioned because money was not put aside for the future during the years of plenty.

Now that the downturn is upon us we have nothing to fall back on. At the same time, the economy was lopsided with an over reliance on one sector of International Business (insurance) and construction together with a public service that was unsustainably large. It is these facts that form the backcloth to the recent results of the Government budgets.

In the year ended 31st March 2011 the deficit was $254 million; in 2012 the estimate is for a deficit of $268 million and the Budget for 2013 is $172 million ($284 million on a comparable basis).

All of these deficits have been financed by borrowings which both add to the daily cost of running Government (interest costs) and to future costs (repayment).

In 2013 the daily expenditures will be running at approximately $2.745m and revenue receipts at $2.492m or a gap of $253,000 each day.

On top of that there are the interest costs of $233,000 and the contribution to the Sinking Fund of $84,000 together with Capital Expenditures of $209,000 every day.

Thus each day from 1st April 2012 until 31st March 2013 the Government is expecting to borrow $779,000 for a total amount of $284 million.

Everyone in Bermuda is aware of the economic challenges we face: job losses and declining incomes which result in a shrinking resident population and declining rents. This is precisely the reverse of our experiences in the period 2000 t0 2007 when increasing numbers of jobs required larger numbers of work permit holders to enter Bermuda as all Bermudians who sought jobs were employed. The outcome during that period was of rising rents (and house prices); a boom time for the construction industry and voluble concerns about overcrowding; traffic congestion; schooling etc. This all seems a world away but it was only six years ago.

Given the difficulties facing the Bermuda economy, the number one task for the upcoming year is to get as many Bermudians back to work as possible and at the same time increase the total number of jobs in the economy.

During the boom years it was not just the Government who increased spending by more than their income; the private sector did likewise. The result: an unwelcome amount of debt that now needs to be serviced from diminished incomes.

In order to service this debt the incomes of Bermudians need to grow again and that means increasing the total number of jobs in the economy.

When a Bermudian replaces a contract worker the latter leaves the Island and as a result the economy shrinks. This explains the dramatic falls in rents. A knock on effect is that all businesses have to make do with lower sales and the cumulative impact does permanent damage to the economy.

Analysis by the Chamber of Commerce indicates that during the boom years every five newly arrived contract workers created one additional job. It is likely that the same type of link applies now in the downturn.

Thus for every 500 contract workers who leave the Island, another 100 local jobs are lost. In turn, these 100 job losses lead to a further loss of 20 jobs. It this downward spiral that is creating the economic pain that we all experience on a daily basis and that shows up in the Government’s Budget.

The only way to solve this problem is to attract more businesses to the Island and that requires that all policies are focussed on this one goal.

There was little in this Budget statement that addresses this issue.

Peter Everson is a former CEO of an international investment manager. This column reflects his personal views.