0

3-4% Deficits Are'becoming Norm'

By NEIL HARTNELL

Tribune Business Editor

A former finance minister yesterday warned that fiscal deficits equivalent to 3-4 per cent of gross domestic product were "becoming the norm", after the Central Bank of the Bahamas revealed that it widened by $45.2 million or 27.6 per cent during the first eight months of the 2011-2012 Budget year.

photo

James Smith

With the fiscal deficit hitting $209 million at end-February 2012, it appears that the Bahamas is on course for another $300 million-plus fiscal deficit for the Government's 2011-2012 fiscal year, unless the Stamp Tax payable on the Atlantis ownership transfer is enough to make a sizeable difference.

Meanwhile, James Smith, former minister of state for finance in the 2002-2007 Christie administration, said the figures indicated that the Government would again have to borrow between $300-$400 million to cover its funding gap - a situation that was unsustainable in the medium to long-term.

"We seem to be somewhere between 3-4 per cent of GDP, and we've tried to keep it more between 1-2 per cent historically," Mr Smith told Tribune Business of the projected fiscal deficit outcome.

"We seem to be going in the opposite direction. That's not sustainable. That'll mean your automatically borrowing $300-$400 million a year, so in two-and-a-half years you'll have borrowed another $1 billion unless we fill that gap between recurrent revenue and recurrent expenditure."

This, Mr Smith added, was unlikely to happen in the short-term. For the first eight months of the 2011-2012 fiscal year, the Central Bank noted that total spending, which increased by $97.8 million or 9.2 per cent to $1.164 billion, outpaced the 5.8 per cent or $52.5 million revenue growth to $955.4 million.

The former finance minister said this was further evidence that the Government's 2010-2011 Budget year tax increases had failed to plug the deficit, and warned that the Bahamas "would be living" with higher fiscal deficits and a larger national debt in the short-term at least.

The Government's annual $300-$400 million deficit meant that it was having to borrow the equivalent of $25-$30 million per month to bridge the financing gap, Mr Smith said.

Public sector salaries were in the range of $60 million per month, he added, with debt servicing costs accounting for another $25-$30 million. And, with Customs duty receipts not spread uniformly throughout the year, being concentrated in the first five months, Mr Smith said this might mean the Government "runs into cash flow problems".

"We cannot afford to miss debt payments or not pay staff, and that's why we may run into periodic cash flow problems over the next few years," he told Tribune Business.

"That's why this has to be addressed almost immediately..... I think we're in for a bit of a ride. This is a structural problems, as revenue is not growing as fast as expenditure, which means we are borrowing money. Something's got to give somewhere."

Assessing the three months to end-February 2012, the Central Bank said the Government incurred a $58.1 million deficit as opposed to a $29 million surplus in the year-before comparative period.

"Spending surged by $117.5 million (28.8 per cent) to $524.9 million, to outpace a $30.4 million (7 per cent) increase in revenues to $436.4 million," the Central Bank said.

"The expenditure outturn was primarily explained by an almost eight-fold hike in net lending to public corporations, to $102 million, combined with a $40 million increase in capital expenditure, which was linked to the purchase of a new Government building and higher infrastructure spending.

"However, current outlays fell marginally by $3.2 million (0.9 per cent). Revenue gains included a $12.3 million (52.1 per cent) timing-related increase in non-tax collections, as well as the receipt of $17.7 million in funds related to the sale of a property, while tax receipts steadied at $413.3 million.

"Financing for the deficit over the three-month period consisted of $12.4 million in foreign currency loans and $4.5 million in short-term advances. At end-March, the Direct Charge on the Government stood at approximately $3.86 billion, a gain of 1.3 per cent from end-December 2011."

Comments

Use the comment form below to begin a discussion about this content.

Sign in to comment