The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s fiscal deficit “deteriorated” by 56 per cent during the first quarter of its 2014-2015 financial year, growing by $54.1 million to hit $151 million.

The increasing ‘red ink’ for the three months to end-September, revealed in the Central Bank of the Bahamas report on monthly economic developments for November, was largely blamed on a $65.3 million year-over-year increase in public spending.

The figures will likely be seized on by some, particularly in the private sector, as proving their case that the Government needs to cut its spending, and be more accountable and transparent on this issue.

However, the data could just as easily be interpreted as showing why the Government needs to implement Value-Added Tax (VAT) to generate the revenues it needs to finance the Bahamas’ needs.

And, in fairness to the Christie administration, a “doubling” of capital spending to $60.3 million - as opposed to increased expenditure on its fixed costs - was a significant factor in the expanded deficit.

“The acquisition of the new ships for the Defence Force explained a four-fold rise in asset acquisitions, to $18.4 million, and infrastructure-related spending was higher by $15.4 million (58.3 per cent),” the Central Bank said. “Net lending to public corporations also grew by $9 million to $20.1 million.”

Still, there is little escaping the widening deficit, and the debilitating effect this is having on the national debt and future economic stability.

“The fiscal deficit deteriorated over the first quarter of 2014-2015 by $54.1 million (55.9 per cent) to $150.9 million,” the Central Bank said, “associated with a $65.3 million (16.3 per cent) hike in aggregate expenditure to $467.4 million, which outpaced an $11.2 million (3.7 per cent) rise in total receipts to $316.5 million.”

The Christie administration’s fixed-cost spending, on areas such as civil service wages and office rents, grew by $26.3 million (7.3 per cent) to $387 million.

The Central Bank said “the bulk” of the increase came from transfer payments, which rose $23.4 million or 15.4 per cent, “owing to broad-based gains in interest payments, subsidies and transfers to various entities”.

“In addition, wages and salaries firmed by $11.1 million (7.4 per cent),” the Central Bank added. “However, purchases of goods and services fell by $8.3 million (14.3 per cent), due to a timing-related contraction in payments for contractual services.”

The Central Bank said the modest growth in government revenue was driven by a $6.8 million (2.5 per cent) gain in tax receipts to $278.5 million, as taxes on international trade and business and professional fees both increased by $4.8 million.

But taxes on ‘selective’ services fell by $1.0 million, while other ‘miscellaneous’ taxes dropped by $1.6 million. Non- tax receipts rose marginally, by $1.4 million (4.1 per cent) to $34.9 million, linked to a $1.5 million (5 per cent) gain in fines, forfeits and administrative fees.

Elsewhere, the Central Bank expressed hope that the sharp drop in global oil prices may be “a partial counterweight” to the cost of living increases anticipated with Value-Added Tax’s (VAT) implementation.

However, the oil price drop has yet to have the impact where Bahamians need it most, namely in their Bahamas Electricity Corporation (BEC) bills.

While BEC’s fuel charge dropped by 3.6 per cent in November compared to the previous month, it was still higher on a year-over-year basis by 5.6 per cent at $0.2671 cents per kilowatt hour (KWh).

Meanwhile, the transfer of $100 million in non-performing mortgages from Bank of the Bahamas to Bahamas Resolve resulted in locally-denominated credit to the commercial banking sector dropping by $46 million in November.

The Central Bank said claims on the private sector fell by $94.2 million, with commercial and mortgage loans declining by $49.4 million and $41.1 million, respectively.

“In November, banks’ credit quality indicators improved modestly, as total private sector loan arrears declined by $8.3 million (0.7 per cent) to $1.278 billion, with the corresponding ratio of arrears to total loans narrowing by 19 basis points to 21.2 per cent,” the Centra Bank said.

“In terms of the average age of delinquencies, the short-term (31-90 day) segment fell by $21.8 million (6.5 per cent) to $313.8 million, and by 37 basis points to 5.2 per cent of total loans.

“In a modest offset, the non-performing loan category - arrears in excess of 90 days and on which banks have stopped accruing interest - continued its upward trajectory, firming by $13.4 million (1.4 per cent) to $964.2 million, and by 19 basis point to 16 per cent of total loans.”