Published On:Wednesday, March 10, 2010

By NEIL HARTNELL

Tribune Business Editor

AN 88.9 per cent increase in subsidies to public corporations and entities was a key factor behind the 6.4 per cent increase in central government spending witnessed during the 2009-2010 Budget year's first half, it was disclosed yesterday, with the fiscal deficit for that period growing by 30.3 per cent to $176.2 million.

The Central Bank of the Bahamas' report on monthly economic and financial developments for January 2010 revealed that what it termed "assistance to public entities" grew to $59.6 million during the period between July 1 and December 31, 2009.

That was the principal factor behind why the Government's total spending for the 2009-2010 Budget year's first half grew to $805.1 million, again illustrating how loss-making, financially strapped public corporations are bleeding taxpayers and exacerbating the Bahamas' fiscal weaknesses at a time when the Ingraham administration needs every cent of revenue it can lay its hands on.

A major factor behind the "assistance" increase is likely to have been the $30 million payment the Government made to Shell Western on the Bahamas Electricity Corporation's (BEC) behalf, paying down the latter's fuel bill payables.

Phenton Neymour, the minister of state for the environment, who has responsibility for BEC, told the House of Assembly during the Mid-Term Budget debate that the Corporation owed Shell some $62.1 million in unpaid fuel bills as at February 28, 2010.

Of that sum, some $22.8 million came due in February, with the remainder past due and a smaller amount to come due in March.

"The billings (or revenue) for January 2010 was $29.1 million. In other words, we bill $29.1 million and for the same period we owe Shell $22.8 million. Essentially, in January 2010, $0.78 on every dollar collected by BEC went towards its fuel bill," Mr Neymour said.

Another factor behind the 6.4 per cent increase in the Government's spending during the Budget year first half was the 36.23 per cent increase in capital expenditure, which rose from $59 million in the previous year to some $80.4 million this time around.

This spending, of course, was directed towards infrastructure and capital works projects as part of the Government's economic stimulus programme, with the increase widely seen as socially desirable to soak up heightened unemployment levels and improve the foundations upon which the private sector conducts business.

The Central Bank data again indicated that the Government had enjoyed a measure of success in controlling its recurrent spending during the 2009-2010 first half. This money, which covers the Government's fixed costs such as rents and civil service wages, actually decreased by 0.12 per cent to $665.2 million, compared to the $666 million outlay during the 2008-2009 first half.

However, the Central Bank noted that the fiscal deficit for the 2009-2010 first half had grown from $135.3 million in the 2008-2009 Budget year to $176.2 million this year because "the rise in aggregate expenditure outweighed the modest growth in revenue".

As commented by both the Prime Minister and Tribune Business previously, the Government's revenues had benefited from $84 million in one-off revenues, largely generated by the South Riding Point sale and Bahamas Telecommunications Company (BTC) dividend.

The Central Bank acknowledged this, noting that non-tax revenue more than doubled to $129.5 million during the 2009-2010 fiscal first half. This resulted in total revenues increasing by 1.2 per cent to $628.9 million.

However, tax collections fell by 12.2 per cent to $499.3 million, due to the impact on international trade and economic activity from the decline in consumer demand. Taxes related to international trade and transactions fell by 10.7 per cent year-over-year, while 'miscellaneous' Stamp taxes dropped by 21.3 per cent.

Import and excise duties declined by 11.74 per cent during the 2009-2010 first half, falling to $262.5 million compared to the $297.4 million generated the year before.

Other data released by the Central Bank showed that the central government's direct debt had increased by almost $450 million year-over-year between January 2009 and January 2010, hitting $3.32 billion in the latter month.

With the national debt standing at $3.9 billion at year-end 2009, Central Bank figures showed that the Bahamas' total foreign currency debt stood at $1.179 billion as at end-January 2010, some 30.2 per cent of the total debt.

The $1.179 billion figure represented an almost $323 million increase on the Bahamas' foreign currency debt year-over-year, but only $703.1 million or 59.6 per cent of this nation's foreign currency borrowings are held by foreign creditors. This means that only 18 per cent of the Bahamas' total national debt is in the hands of overseas creditors.

The Central Bank said prospects for a short-term improvement in the Bahamas' fiscal position were slim to non-existent, stating: "Anaemic private sector demand constrained prospects for any near-term improvements in the fiscal situation, which registered a deterioration during the first half of the 2009-2010 fiscal year.

"The deficit and debt-to-GDP ratios are anticipated to stay elevated in the near term, reflecting the sustained effects of weak consumer demand conditions on tax revenues."