The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Wall Street yesterday said it wants the Government to come up with “more of a complete package” rather than just a 10 per cent spending cut designed to contain immediate fiscal “pressures”.

Lisa Schineller, Standard & Poor’s (S&P’s) senior analyst for the Bahamas, told Tribune Business that the credit rating agency was still looking for the Christie administration to announce a credible medium-term plan to halt the continued deterioration in the national finances.

Giving a lukewarm reaction to indications by Michael Halkitis, minister of state for finance, that the Government was set to announce 10 per cent spending cuts across most agencies and departments in a bid to contain the growing fiscal deficit and national debt, Ms Schineller said Wall Street was looking for more from the Bahamas.

Her comments came as the International Monetary Fund (IMF) released a statement on the Article IV with the Bahamas, describing tackling the Government’s fiscal woes as “the key policy priority” (see other story on Page 1B).

Joining Ms Schineller and S&P in calling for the Christie administration to adopt a “credible medium-term strategy” to set the public finances back on a sustainable path, the IMF also warned that the risks facing the Bahamian economy were tilted towards the “downside” or the negative.

Noting that the Government’s finances had continued to show “slippage” since S&P altered its outlook on the Bahamas from ‘stable’ to ‘negative’ last September, Ms Schineller questioned whether the planned spending cuts were a short-term measure designed to “offset” capital budget overruns.

“It would be interesting to have more colour and get a broader sense of what they’re thinking - something like that versus something medium-term” Ms Schineller told Tribune Business.

“From the rating perspective, we put the negative outlook on in September, and are looking for signs more for a medium-term plan to curtail the fiscal deterioration.

“It looks like there’s slippage, the numbers that have come out so far.”

The Central Bank’s report on monthly economic developments for December 2012 backed that assessment, noting that the Government’s fiscal deficit for the first five months of the 2012-2013 Budget year rose by 6.7 per cent or $70.3 million to hit $220.9 million.

This imposed further strain on the Government’s finances by taking the administration’s direct debt burden to $4.23 billion, an 11.5 per cent year-over-year increase. Add in ‘contingent liabilities’ worth around $590 million, and the Bahamas’ total national debt already exceeded $4.8 billion by end-November 2012.

The Government’s Mid-Year Budget, set to be unveiled in Parliament next Wednesday, will likely provide some details as to how the Government plans to rein in a projected $550 million fiscal deficit for 2012-2013, and give specifics on proposed spending cuts.

Explaining what S&P was looking for, Ms Schineller told Tribune Business: “The bigger picture outlook for the rating is not a 10 per cent spending slash, but what is the view in tax reform, what is the view on cutting spending on a more permanent basis versus just trying to contain pressure?”

Acknowledging that the Christie administration had little chance to put its own stamp on the 2012-2013 Budget, given the short window post-election, the S&P analyst said she was looking for something that would place the Bahamas’s fiscal trajectory on a consistent, “improved basis”.

“From our perspective, we’re looking at what is their willingness to deliver these kind of things to really turn around the deteriorating path,” Ms Schineller explained.

Referring to the planned spending cuts, she added: “Is this more of a one-off to try and contain, or offset some of the cost overruns on the capital budget side, or is it more of an indication of things to come?”

Agreeing that it was a sign “of potential willingness” to implement required austerity measures, Ms Schineller said S&P wanted to know the Government’s intentions when it came to both medium-term revenue and spending issues.

“We want to see more of a complete package; what their overall strategy is rather than a 10 per cent cut across the board,” she told Tribune Business.

“The thing I’d really be looking for are timelines and adjustments that might come up from the Mid-Year Budget.”

Ms Schineller last October said there was “at least a one in three chance” that S&P will downgrade the Bahamas’ sovereign credit rating again within the next 24 months.

The Central Bank of the Bahamas’ December 2012 report, meanwhile, noted that the Government borrowed a total $383 million to finance its deficits during the July-November 2012 period, with some $325 million in Bahamas Government Registered stock accounting for the lion’s share of this.

The remainder came from $30 million in local currency short-term advances, and $28 million in external drawings.

While the politicians may not like to face it, the Central Bank data showed that the Government has more of a spending problem than a revenue one.

Total spending increased by $90.7 million (14.2 per cent) to $729.8 million, which outpaced a $20.4 million (4.2 per cent) growth in total revenue to $509 million.